I'm always a sucker for a good sale. There was a 'SAVE 15%' sale on today the leading U.S. drugstore chain, as Walgreen Co. (WAG) shares were knocked flat on their back when the company announced a 3.8% decrease in 4th quarter earnings. I could not resist the opportunity to double my position within my non-registered portfolio.
Of course I think this is a huge buying opportunity, since even if earnings growth falters in the short term I still believe earnings growth will continue to be double digits long term which will grow my investment nicely. People will continue to choose drugstores over big box stores for their medication and related goods because of location, convenience, and service. Boomers will cause the industry to grow, and although there is strong competition Walgreens is positioned nicely in most markets already.
Reasons for the earnings drop were stated as follows:
"due in part to lower reimbursements on some popular generic drugs and higher expenses (increased store and staff costs)."
This was Walgreen's first year over year profit drop in over a decade. People are speculating that the generic drug problems are partly due to Wal-Mart's new initiative to offer generics at $4. This is sending the entire industry down today as CVS and Rite Aid are down 5% and 4% respectively as of writing this. Walgreen Co. earnings for the total year (2007) were up 16.6%, and sales grew 13.4%.
Not for the faint of heart, I guess, but it is mornings like this where I have to ask myself, 'What has changed?". Is this company instantly worth 15% less today than it was on Friday, or could this be a bit of an overreaction? This was certainly unexpected, and disappointing for Walgreen shareholders, but should I be disappointed as a very long-term investor? I think the answer is no, and on the contrary I should be happy to be able to pick up these shares at such low levels. Combine today's low levels with the current value of the Canadian dollar and maybe, just maybe this could be one of those very rare 'once in a lifetime' opportunities.
As of writing this the shares are still flat on their back at $40.34 down about 15% from Friday's close. This is a company has had such great success and consistency in earnings growth in the past that I believe high expectations were built up in the market. With high expectations comes significant disappointment when stumbles happen. I think that is what were are seeing today.
When a 50 Billion dollar, boring, blue-chip consumer staple stock falls 15% in one day it shows you that anything can happen in the stock market.
I promise this will be my last post, which refers to Walgreen Co. for at least six months...consumer staple stocks are boring...