Longs Drug Stores: The gold standard of pharmacies

There is a Walnut Creek, California drug store chain that says it operates on the basis of "treating others as we, ourselves, would like to be treated." From its exacting governance policies to its network of wellness centers and health screening programs, it appears the outfit means business.

Longs Drug Stores Corp.(NYSE:LDG) provides retail drug and pharmacy benefit services. The Retail Drug Stores unit offers prescription drugs and general merchandise. It also operates a mail order pharmacy business and provides various health screening services. The Pharmacy Benefit Services division offers benefit management to third party health plans and prescription drug plans to Medicare participants in 35 states. The firm operates just over 500 drug stores in California, Hawaii, Nevada, Washington, Colorado and Oregon. Its prescription benefit plans cover approximately 5.9 million clients.

Longs pleased investors late last month, when it reported Q4 EPS of 81 cents and revenues of $1.34 billion. Analysts had been looking for 74 cents and $1.34 billion. Management also guided Q1 EPS to 47-52 cents (46 cent consensus), FY08 EPS to $2.40-$2.50 ($2.21 consensus) and FY08 revenues to $5.35-$5.45 billion ($5.41B consensus). The stock popped into a bullish "pennant" consolidation pattern on the news. Stocks frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the shares with one "strong buy," five "holds" and three "sells." Analysts see a 19% average annual growth rate, through the next five years. The stock's Price to Sales ratio (0.38), Price to Book ratio (2.34) and Price to Cash Flow ratio (11.79) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 78% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $38.76 and $52.98. A stop-loss of $44.50 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.