So it makes total sense that Cramer would bless Walgreen back in February after CEO Greg Wasson made a great pitch for his company’s restructuring efforts. And once Wasson explained his reasons for buying New York-based pharmacy chain Duane Reade, Cramer saw reason to double down.
Then in June he changed course, telling viewers to take profits ahead of WAG’s third quarter. Competition in the space was just too fierce, and the resultant price wars were cutting into profits. Cramer’s call proved right, as the company missed the consensus earnings estimates by 4 cents. The stock’s been idling, however unofficially, in the “Sell Block” ever since.
But over the last two weeks, things seem to have changed. Walgreen delivered a 5-cent earnings beat and 7.4-percent increase in revenues on Sept. 28, and on Tuesday it showed positive same-store sales growth for September, up 5.3 percent year-over-year. And the comparisons from 2009 weren’t exactly friendly given the boost swine flu gave to the pharmacy biz, so the sales bump is commendable.
This has Cramer once again changing his mind on WAG. The stock is no a buy, he said Friday.
He praised the company for slowing its new-store launches—with 50 percent of the US within two miles of a Walgreen, there’s already plenty—and focusing instead on making its existing stores more profitable. The strategy, which includes a store facelift, better product assortments and improved customer service, is a hat tip of sorts to Family Dollar, and we know it worked for FDO.
Walgreen also operates the largest independent specialty pharmacy in the US, “a terrific and growing business,” Cramer said. Plus, the company’s cutting costs, controlling expenses, and the stock is cheap, trading at just 13 times forward earnings. That’s a significant discount to WAG’s historical multiple of 16 over the last half decade.
So while you’re neck may be sore after these eight pong-tastic months, there was, as always, a method to the madness. Score one for Cramer.
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