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Drug Stores

Drug Stores. Trevor Yerrick Section 2. Agenda. Quick Background Drug Stores Industry Walgreen Co. Weighted Average Cost of Capital Re-estimate Value of WAG – DCF vs. REI Models Issues Residual Enterprise Income Model Discounted Cash Flow Model. Quick Background. Drug Store Industry

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Drug Stores

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  1. Drug Stores Trevor Yerrick Section 2

  2. Agenda • Quick Background • Drug Stores Industry • Walgreen Co. • Weighted Average Cost of Capital • Re-estimate Value of WAG – DCF vs. REI Models • Issues • Residual Enterprise Income Model • Discounted Cash Flow Model

  3. Quick Background • Drug Store Industry • Traditional vs. In-store • Pharmacy Benefit Managers (PBMs) • “Nation’s largest drugstore chain” • 8,582 locations, including 8,116 drug stores • 2013: $72.2 B in sales, $45.5 B in prescription sales • Recent trend of expansion through acquisitions • Alliance Boots (45%) acquisition in 2012, option to purchase remaining 55% in 2015

  4. Weighted Average Cost of Capital • For WAG: • VD = $4,385 million (book value of NFL) • VEq = $54,578 million (stock price of $57.44 at December 31, 2013 * 950,170,000 common shares outstanding) • Implied VEnt = $58,963 million ($4,385 + $54,578)

  5. Issues with Re-estimation First pass at re-estimation with calculated WACC Changing growth rates

  6. Issues with Re-estimation First pass at re-estimation with calculated WACC Changing growth rates

  7. Issues with Re-estimation First correction of re-estimation (for last Monday) Changed growth rates to be the same

  8. Issues with Re-estimation First correction of re-estimation (for last Monday) Changed growth rates to be the same

  9. Issues with Re-estimation Final Discounted Cash Flow Model Extended forecasts out to 2020 (3 more years)

  10. Issues with Re-estimation Final Residual Enterprise Income Model Extended forecasts out to 2020 (3 more years)

  11. Questions?

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