Further Expansion
Following the lines of the US rail companies, Kansas is also focusing on Mexico to gain from the flourishing trade opportunities between the two countries. I see 2013-2014 to be a tremendous growth year for Kansas, as it is going to open four new manufacturing units in Mexico. Mexico already contributes around 45% to the company’s total revenue. New Mexican units will be opened in 2014 and it will further increase its Mexican production by 25%-30%. Considering the strong fundamentals and good growth prospects from the Mexican market supported by cheap labor costs, I expect the revenue growth to be 10% and 13% for 2013 and 2014, respectively.
Cost Reduction
Furthermore, Kansas has been continuously taking initiatives for reducing its overall costs. Kansas had already reduced its debt burden by $200 million in FY11. In February 2012, 18 financial institutions, including Morgan Stanley, Bank of America, Merrill Lynch, JP Morgan, and others together granted a term loan worth $275 million to Kansas. This term loan will mature on Jan. 15, 2017 and Kansas may utilize this term loan (carrying 1.25% interest rate) to reduce its debt burden, which carries an 8% fixed interest rate. This initiative by Kansas shall reduce its overall operating cost and will boost its earnings.
I recommend a buy for Kansas looking at its long-term growth prospects and its cost reduction initiatives.
Walgreen Company (NYSE:WAG)
Walgreen reported slightly disappointing annual sales figures. Total sales for fiscal 2012 were $71.6 billion, compared to $72.2 billion in 2011. This slight decline in earnings was mainly due to its multi-billion dollar investment in the European health and beauty retailer Alliance Boots.
Targeting Europe
I believe Walgreen is adopting a two-step approach for its win-win strategy. Walgreen has already purchased 45% of Alliance Boots for $6.7 billion and will acquire the remaining 55% for $6 billion within the coming three years. The company will gain from Boots’ operations in Europe and several other emerging countries. Due to the acquisition of Boots, Walgreen’s European market shall grow by 50%, and it’s overall market share in the Pharmacy industry may be boosted by 10%. The combination of Walgreen/Boots is on track to achieve the first year synergy target of $100-150 million. Moreover, with this acquisition Walgreen’s total revenue is expected to increase to $130 billion in FY 2016.
Looking at Walgreen’s tremendous expansion plans, I believe its total earning shall grow by around 80% in the coming four years, and it may be considered as a long run growth stock. Therefore, I recommend a buy for Walgreen.
Conclusion
To sum up, Cerner and Kansas both have been performing well over market expectations and can be considered growth stocks for long-term capital appreciation. On the other hand, Walgreen’s results have disappointed a bit due to its huge capital investment. However, it can also be considered for a long-term investment based on its acquisition of Alliance Boots. I recommend a buy rating for all the three stocks.
The article Buy These Inflation Proof Stocks originally appeared on Fool.com and is written by Madhu Dube.
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