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Dear Mr. Berko: What do you think of Walgreen Co. stock as a long-term buy for my IRA? My broker, who is a good friend and who really likes your column, said that Walgreens was founded by Walter Green, which is how the name (Walgreen) came to be, and says his first drugstore was in Chicago. I think he’s wrong on both accounts – I think the first drugstore was in Galesburg, Ill. We bet a lunch on your answer, if you have one. 鈥� G.L., Springfield, Ill.

Dear G.L.: Charlie R. Walgreen got his start as an errand boy for a Galesburg, Ill., drugstore (just up the road a bit from Springfield) and was fired for refusing to shovel snow from the sidewalk. But that didn’t stop him. He bought his first drugstore in 1902 at age 29 and opened his second store a few years later. By 1916, he owned nine drugstores in Chicago under the name of Walgreens. His stores prospered during the Great Depression, and it’s worth noting that Hubert Humphrey was one of his first franchisees.

So, Walgreen opened his first store in Illinois, but not in Galesburg; rather, in Chicago. And his family name was originally Olofsson, which his dad legally changed for business reasons. There may be a Walter Green in the drugstore business, but there was never a Walter Green who founded Walgreen Co. So it looks like you’ve lost one wager and won the other. And tell your broker I said hello. We had lunch together a few years ago.

And I like Walgreen Co. (WAG – $32.18). It reported record profits for the 2009 fiscal year on higher revenues with 9 percent fewer employees than the prior year. This presages an interesting trend in the labor market and suggests that many corporations, including municipal, state and federal governments, can reduce employment 10 percent to 20 percent and never miss a beat. It’s a common observation that productivity per employee varies inversely with the number of employees on the payroll. And the recession has taught employers that they can produce equal or better results with a smaller workforce.

And Walgreen Co. is a dandy company. The largest drugstore chain rakes in $63 billion in revenues. Last year, the company filled 651 million prescriptions, l.78 million prescriptions per day or an average of 255 daily prescriptions for each of its 7,000 locations. Walgreen Co. filled more prescriptions in 2000 than were written in the entire country of Germany. Pharmacy revenues increased 7.8 percent in 2009 to $42 billion, which accounted for 67 percent of Walgreen Co.’s total revenues. Its prescription growth was more than twice that of the industry average, and the company continues to increase its market share. Last year, it was responsible for l8 percent of all retail prescriptions written in the U.S., up from l5.3 percent just five years ago. And in the next five years, the company wants that number to be 21 percent.

This year, Walgreen Co. believes it can grow revenues to $67 billion with the help of 300 new stores. Management has had enormous success entering new markets and relocating older stores to new freestanding units, which tend to increase store revenues by 8 percent. Last year was the company’s 35th consecutive year of record revenues and earnings. And this year, it expects margins to expand on increased revenues of higher margin generics, lower inventory markdowns and even lower labor costs.

Unfortunately, Walgreen Co.’s in-store health clinics continue to hurt profits and probably cost the company .06 cents per share last year. Nevertheless, with the recent purchase of New York-based Duane Reade drugstores, Walgreen Co. expects earnings to increase from $2.02 last year to $2.36 in 2010.

Walgreen Co. is one of those companies most folks should own in a growth portfolio. The dividend, which was recently raised to 55 cents, stinks; however, the common stock offers a handsome upside potential in a three- to five-year time frame. And it may be even better if the rumor of a Rite Aid takeover becomes fact.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or e-mail him at [email protected]. 漏 2010 Creators.com