BUSINESSWEEK ONLINE : JULY 10, 2000 ISSUE
BUSINESSWEEK INVESTOR -- INSIDE WALL STREET

Greener at Walgreen


Time to comb the Old Economy for new winners? With the once high-flying techs and Net wonders fast losing their allure, growth investor David Post has been scouting for winners among the brick-and-mortar groups.

One of his finds: Walgreen (WAG), the No. 1 drugstore chain in sales ($21 billion) and store count (3,100 outlets in 41 states and Puerto Rico.) Since Post believes that earnings drive a stock price, he expects Walgreen will break out to higher levels. Walgreen is on track, he says, to surprise the Street with unusually strong earnings over the next two years, based on big opportunities for increased market share in the fiercely competitive drug business. Walgreen's price-earnings ratio of 40 isn't a concern, says Post, because of its industry leadership.

Now at 29, the stock is close to its 52-week high of 32 1/2. He thinks Walgreen will hit 40 this year.

''In these times of Fed tightening and investor rediscovery of fundamentals, Walgreen is an outstanding investment haven,'' says Post, a partner at investment firm Harris Bretall in San Francisco, which has accumulated 3.5 million shares. What's striking about Walgreen, says Post, is its record of steady earnings growth, high return on capital, and squeaky-clean reputation in its accounting practices. ''You won't get any negative surprises at Walgreen,'' assures Post. Analysts' consensus estimates are for Walgreen to earn 73 cents a share in fiscal 2000 ending Aug. 31, and 85 cents in 2001. Post expects Walgreen to exceed the 2001 numbers, based on its opportunities to grab market share from the independents as well as the other drugstore chains that are burdened with financial woes.

Jack Russo of A.G. Edwards says Walgreen is ''clearly the leader.'' The company's results have led the pack for many years, notes Russo.

By GENE G. MARCIAL

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