1. Walgreens David Mizell Date Presented: 12/09/2004

2. Recommendation Recommendation: Hold Recommendation: Hold Own 1,000 Shares in Walgreens Own 1,000 Shares in Walgreens Purchased at $25/share on 10/6/1999 Purchased at $25/share on 10/6/1999 Cost Basis is $25,000 Cost Basis is $25,000 Trading at $38.31 as of 12/8/2004 Trading at $38.31 as of 12/8/2004 Value currently $38,310 Value currently $38,310 Stock has gained $13,310 over holding period, up 53.24% Stock has gained $13,310 over holding period, up 53.24%

3. Company Overview Industry Industry GICS – Drug Retail GICS – Drug Retail Competitors – Rite Aid, CVS, Osco Competitors – Rite Aid, CVS, Osco Corporate Info Corporate Info Founded in 1901 by Charles R. Walgreen, Sr. in Chicago Founded in 1901 by Charles R. Walgreen, Sr. in Chicago Operate in 44 states Operate in 44 states Have 4,582 stores and 163,000 employees as of 8/31/2004 Have 4,582 stores and 163,000 employees as of 8/31/2004 Expect to have 7,000 stores by 2010 Expect to have 7,000 stores by 2010

4. Company Overview Innovations Innovations Introduction of Lunch Counters – 1910 Introduction of Lunch Counters – 1910 Ice cream when warm Ice cream when warm Hot food when cold Hot food when cold The Malted Milkshake The Malted Milkshake First Drugstore Chain to Advertise on radio – 1931 First Drugstore Chain to Advertise on radio – 1931 Profit-Sharing and Pension Plans Profit-Sharing and Pension Plans “Self-Service Retailing” “Self-Service Retailing” Largest Private Satellite User Largest Private Satellite User

5. Past Financial Performance Total revenues were: Total revenues were: - $28,681,100,000 in 2002 - $32,505,400,000 in 2003 - $37,508,200,000 in 2004 Basic net earnings per share: Basic net earnings per share: - $1.00 in 2002 - $1.15 in 2003 - $1.33 in 2004

6. Walgreens’ Numbers Market Cap is 39.15B Market Cap is 39.15B P/E (ttm) is 29.04 P/E (ttm) is 29.04 EPS (ttm) is 1.33 EPS (ttm) is 1.33 Revenue (ttm) is 37.51B Revenue (ttm) is 37.51B Operating Margin (ttm) is 5.71% Operating Margin (ttm) is 5.71% Profit Margin (ttm) is 3.63% Profit Margin (ttm) is 3.63% Beta is.259 Beta is.259

7. Stock Price Over Last 5 Years

8. Financial Analysis P/E Approach P/E Approach Returns a price of $44.45 Returns a price of $44.45 DCF DCF Returns a price of $38.24 Returns a price of $38.24 View Excel Spreadsheet View Excel Spreadsheet

9. Walgreens vs. S&P 500

10. Competitor Comparison Walgreens Walgreens Market Cap:39.15B Market Cap:39.15B Employees: 117,000 Employees: 117,000 Rev. Growth (ttm):15.40% Rev. Growth (ttm):15.40% Revenue (ttm):37.51B Revenue (ttm):37.51B Net Income (ttm):1.36B Net Income (ttm):1.36B EPS (ttm):1.33 EPS (ttm):1.33 P/E (ttm):29.04 P/E (ttm):29.04 CVS CVS Market Cap:18.07B Market Cap:18.07B Employees: 100,000 Employees: 100,000 Rev. Growth (ttm):10% Rev. Growth (ttm):10% Revenue (ttm):29.12B Revenue (ttm):29.12B Net Income (ttm):912.6M Net Income (ttm):912.6M EPS (ttm):2.233 EPS (ttm):2.233 P/E (ttm):20.23 P/E (ttm):20.23 Rite Aid Market Cap:1.78B Employees: 36,250 Rev. Growth (ttm):5.1% Revenue (ttm):16.87B Net Income (ttm):172.06M EPS (ttm):.039 P/E (ttm):11.13

11. WAG vs. CVS and RAD (1 year)

12. WAG vs. CVS and RAD (5 year)

13. Porter’s Five Forces Threat of New Entrants: Moderate Threat of New Entrants: Moderate Threat of Substitutes: Low Threat of Substitutes: Low Bargaining Power of Buyers: High Bargaining Power of Buyers: High Industry Rivalry: High Industry Rivalry: High Bargaining Power of Suppliers: Low Bargaining Power of Suppliers: Low

14. Macroeconomic Review Aging Population Aging Population 12.4% Over Age of 65 – 2001 12.4% Over Age of 65 – 2001 Growing Due to Retirement of “Baby Boomers” Growing Due to Retirement of “Baby Boomers” Importation of Drugs from Canada Importation of Drugs from Canada Could Deprive Walgreens of Revenue Could Deprive Walgreens of Revenue Being Discussed or Implemented across US by States Being Discussed or Implemented across US by States Canadian Parliament is Concerned Canadian Parliament is Concerned Bush Against the Policy Bush Against the Policy

15. Macroeconomic Review Domestic Political Health Care Issues Domestic Political Health Care Issues New Medicare Prescription Drug Plan New Medicare Prescription Drug Plan Adds 75-100 Million New Prescriptions into the Market Adds 75-100 Million New Prescriptions into the Market Does Reduce Amount Medicare Pays Each Individual Prescriptions –Make up in Volume Does Reduce Amount Medicare Pays Each Individual Prescriptions –Make up in Volume Medical Savings Accounts-Bush’s Plan Medical Savings Accounts-Bush’s Plan

16. Company and Business Practices Currently have 4,582 stores in 44 states as of 8/31/2004 Currently have 4,582 stores in 44 states as of 8/31/2004 Opened 436 stores in 2004 Opened 436 stores in 2004 Goal to open 450 stores in 2005 Goal to open 450 stores in 2005 Major Expansion in CA, NC, SC, FL, TX, WA Major Expansion in CA, NC, SC, FL, TX, WA Expect to have 7,000 stores open by 2010 Expect to have 7,000 stores open by 2010

17. Company and Business Practices Revenues Revenues Drug and In-Store Merchandise Sales Drug and In-Store Merchandise Sales Gained Market Share in 55 of top 60 Product Categories – Food, Drug, and Merchandise Gained Market Share in 55 of top 60 Product Categories – Food, Drug, and Merchandise Mail Order Business Mail Order Business Advantage90 Plan Advantage90 Plan Prescriptions account for 62% of total sales Prescriptions account for 62% of total sales

18. Company and Business Practices Leases Leases No Debt, but Billions in Leases No Debt, but Billions in Leases 18% of Locations Owned, Rest Leased 18% of Locations Owned, Rest Leased Have roughly $20 Billion in Future Lease Payments – Most Leases 20-25 Years Have roughly $20 Billion in Future Lease Payments – Most Leases 20-25 Years Approx. $2 Billion Due Next Year Alone Approx. $2 Billion Due Next Year Alone

19. Company Updates Walgreens is expanding rapidly. Walgreens is expanding rapidly. Added 436 stores in 04 Added 436 stores in 04 Expect to add 450 stores in 05 Expect to add 450 stores in 05 Aging Population and New Medications will Benefit Walgreens Aging Population and New Medications will Benefit Walgreens Concerns Concerns Political Issues Political Issues Mail Order Competition Mail Order Competition No Debt, but a Large Amount of Leases No Debt, but a Large Amount of Leases

20. Recommendation Recommendation: Hold 1,000 shares Recommendation: Hold 1,000 shares I believe Walgreens will continue to lead their industry and rapidly expand. The demographic changes in America will greatly benefit them, especially over the next 5-10 years as the Baby Boomer generation starts to retire. Over the next 15-20 years, the number of retired persons in America is expected to increase dramatically. All of these factors point to Walgreens having continued success in the short and long term. I believe Walgreens will continue to lead their industry and rapidly expand. The demographic changes in America will greatly benefit them, especially over the next 5-10 years as the Baby Boomer generation starts to retire. Over the next 15-20 years, the number of retired persons in America is expected to increase dramatically. All of these factors point to Walgreens having continued success in the short and long term. Questions? Questions?