Despite a tough retail environment, the drugstore chain's returns fell only 14% last year, making it the best performer in our bargain growth portfolio. As the recession deepened, Walgreen's stable pharmacy businesses kept it afloat. Now, things are turning up throughout the store: Both retail and drug sales rose in May, yielding a modest 1% increase in same-store sales.
Edward Kelly, a Credit Suisse analyst, rates Walgreen an "outperform." In a recent note, he wrote "While the near-term outlook is mixed, we see 2010 as an inflection point as Walgreens' strategy to cut growth, reduce expenses, and improve merchandising/in store execution should yield strong earnings upside."
--M.K.
