Walgreens-Rite Aid story is wrong
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Dear Mr. Berko:
I heard that Walgreens (which has the lousiest pharmacy personnel and the longest lines in the nation) is going to purchase Rite Aid. If this is a possibility, I’d like to buy 1,500 shares of Rite Aid, which is under $3 a share. What do you think of the chances that this will happen? Would this be a good gamble? If you pan this idea, then I’d consider purchasing either 100 shares of Walgreens or 100 shares of CVS Caremark. I’m thinking I’d buy Walgreens because they always seem to have lots of people waiting in long lines so they must be a busier drugstore. Would you please tell me which of the three drugstores you would recommend? I also need help in finding an old 401(k) account from my ex-employer in Chicago that is no longer in business. I can’t even find any of the old employees from that company. It was nearly 17 years ago when I left, and at age 74 I could really use that money.
S.R., Deerfield Beach, Fla.
Dear S.R.:
Walgreen Co. (WAG-$35.59) is a well-managed company that posted $54 billion in revenues last year from 6,000 drugstore units and 101 (recently acquired — February 2007) home-health-care facilities.
There’s no way in the galaxy that WAG would merge with the profitless $23 billion revenue Rite Aid Corp. (RAD-$2.60), whose executives were trained at the Laurel & Hardy School of Management in Kazakhstan. Suffice it to say that your chances of winning the Irish Sweepstakes are greater by orders of magnitude than the chances of a merger between WAG and RAD.
I don’t have a problem with your intended purchase of 1,500 RAD as a high-risk low-class speculation, but I doubt WAG would dirty its hands on a company to whom the phrase “profit per share” is anathema.
Walgreens is an unusual company, with zero debt and a huge portfolio of prime real estate upon which many of its stores are located, all of which are unencumbered by mortgages. During the past 10 years, WAG’s locations have increased from 2,360 to 5,997 (by last year’s end). In that same time frame, revenues have grown fourfold to $54 billion and net income exploded fivefold to $2.1 billion. I’ve seen a lot of impressive growth numbers, and very few can hold a candle to this company’s performance.
This year net income is poised to grow — some say to $2.19 a share from $2.04 last year. The increase will be fueled by 400 new units, a 10 percent growth in revenues to $59.5 billion and, sadly, a significant reduction in store personnel. Personnel reduction has so far been responsible for 67 percent of WAG’s earnings increase in the last quarter. This is particularly galling for Walgreens customers, who boil impatiently in the long lines.
Though I admire what WAG has accomplished in the last 20 years, I’m not as sanguine about its stock performance in the coming few years. I wouldn’t own the stock.
Meanwhile, if you can’t abide the long lines at WAG, I suggest you try CVS Caremark Corp. (CVS-$40.63), whose stock performance puts WAG to shame. Where WAG has one person at its checkout counters, CVS has two or three people to help you. The CVS pharmacies are better organized than WAG pharmacies, and although the wait lines at WAG’s pharmacies can drive you bananas, there is seldom a wait at CVS, and their pharmacists actually take time to visit with you. And importantly, your prescriptions at CVS are filled correctly by pharmacists, not clerks.
CVS is certainly a better-managed company than Walgreens. CVS’s $432,000 in revenues per employee exceeds WAG’s $346,000 by an embarrassing $86,000 per worker. CVS’s expected 2008 net profit margins of 4.1 percent exceed WAG’s expected 2008 margins (3.7 percent) by 10 percent. And CVS’s projected 2009 revenues of $87 billion easily trump WAG’s expected revenues of $59 billion. Clearly, CVS appears to be a better long-term investment than WAG. The choice is easy — buy CVS.
It seems that lots of folks neglect to roll over their employer-sponsored 401(k) plans when they leave to take another job. When their former company closes, is merged into a competitor or is reorganized, those orphaned 401(k)s are as hard to find as haystack needles.
However, some of those old 401(k)s, which were hardly worth a bucket of warm beer 15 or 50 years ago, may now be worth $5,000 or $9,000. In one instance several years ago, a reader was delighted to discover that her 401(k) had grown to $62,000.
It seems your former employer has disappeared into the humors, vapors and ethers, or perhaps he just retired with a Swiss bank account to the French Riviera never to be seen again. In that case, your recourse is to contact the Department of Labor’s Employee Benefits Security Administration at its toll-free number: (866) 444-3272. Good luck, and I hope it’s worth a bundle.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service
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