Is Walgreen (WAG) Undervalued?

Walgreen’s strategy is to maintain constant and reliable growth by adding new stores, renovate existing stores, cut operating costs, and improve on their customer service.  Their sales has been on increase in 2009 and should continue into 2010.  Also, their dividend yield is at 1.5% and still growing.  Here is an interesting fact: Since 2000, WAG stock price increased mere 25% but their earnings and dividends more than tripled or 300%.  Based on this fact, Walgreen has become an undervalued stock

Examining WAG three year chart, there is a clear upward support trend line formed in 2009 and a major resistance line at $40 and another one at around $45.  Currently, WAG is at or near the upward support line and should bounce off of this support and head toward its closes resistance level.

Now, let’s look at six month chart.  WG has been trading between two descending  trend lines for past 4 months and is about to break out of this area.  One could argue that it could head toward the lower descending line instead of the break out.  However, going back to the 3 year chart, there is a upward support line that connects current price in the range of $36 and it would be difficult to break this level.  Therefore, WAG should bounce off the upward trend line and will head higher breaking these two descending trend lines.  If WAG does reach lower than $36, then it would definitely signal bearish on WAG.  I believe WAG will reach above $45 and into $50 range sometime this year.

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