Assuming the mantle of a value investor can put you into some odd predicaments. It's not unusual to find yourself rooting against companies you admire, hoping that a quarter or two's underperformance might drive the stock low enough to be an attractive buy. That's the case for me as I look toward Walgreen's
Perhaps Walgreen might miss the consensus by a bit on a "bad hair day" for the broader market. After all, the company faces a very strong LIFO credit that boosted margins in the year-ago period, a couple of months of slightly below-expectation same-store sales, and maybe a small impact from a strike in Chicago. I find it interesting that even though same-store sales were a bit soft, the quarterly mean estimate has remained unchanged. That could be a setup for a slight disappointment.
Let me be perfectly clear on something: I generally don't give a rip about quarter-to-quarter performance from companies (unless, I suppose, it's a shaky turnaround story). But I know that analysts and professional investors do care, and sometimes their short-term focus -- and overreactions -- can provide me with opportunities.
From a long-term perspective, it's hard not to admire this company. Double-digit return on assets, no debt, a modest dividend, and a legacy of growth are all positives. In addition, Walgreen's size gives it the ability to do things that some of its rivals can't. For instance, Walgreen recently acquired exclusive rights to Bristol-Myers Squibb's
It might be tempting to think that Walgreen's size leaves no room for further growth, but I don't believe that. Our population isn't getting any younger, healthier, or thinner, and the outlook for drug demand is pretty good. With all that in mind, I'd encourage Fools to keep an eye on next week's earnings announcement, ready to respond if Wall Street freaks out over some minor or transitory issue.
For more related takes:
- Rite Aid Not Right Yet
- Albertsons in a Buyer's Basket?
- Walgreen's Prescription for Success
- A Cautiously Optimistic CVS
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).