Walgreens - perfect example of P/E compression

Walgreen's (WAG) is higher today on heavier volume for the 3rd day in a row, without any visible catalyst.

From the attached weekly chart (compliments of our technical charting service, the Worden Bros at www.worden.com), you can see that WAG has been stuck in a trading range for the last two years between $40 on the low end and $50 on the high end.

One of the hallmarks of the bull market since 2003 has been the leaderhip in non-traditional groups like energy, commodities and utilities, while growth stocks have seen formidable P/E compression, of which WAG is a perfect example.

In the year 2000, WAG had eps of $0.74 and peaked at $45.29 per share in March 2001, thus at that time WAG was sporting a p/e of about 60(x) earnings. Granted the stock was a tad overvalued at that point, but today WAG sports a p/e of 23(x) earnings on the $2.02 consensus eps estimate expected for '07, and what I find even more remarkable is that between 2000 and 2007, the lowest rate of earnings growth WAG saw in a year was 13%.

WAG is getting no valuation premium AT ALL for a stable, consistent, year-in-and-year-out 15% grower.

On a cash-flow basis WAG is even cheaper, trading at 17(x) 4q trailing cash from ops per share and is currently generating about $1 per share in 4q trailing free-cash-flow.

I don't have a good answer on why WAG isn't getting any upside benefit, even with the stable, consistent growth rate.

long WAG