Walgreens Boot Alliance (NASDAQ: WBA)

Intro

Walgreens is a global leader in retail and wholesale pharmacy with a history going back to 1849. The company is present in more than 25 countries delivering to more than 250,000 pharmacies, doctors, health centers and hospitals.

Besides an impairment for its assets in the UK by approx. $2 billion, the firm has ‘survived’ COVID-19 rather well with 2% higher sales for the full year ending in August and growth of 2.3% in the last quarter compared to last year.

While it might be that the retail segment will decline over time due to online sales, Walgreens has partnered with Microsoft and Adobe on the digital front and its e-commerce business has shown strong sales growth, especially this year.

 

Valuation

Mainly as a result of the UK impairment, EPS for the last 12 months has been under pressure albeit still being decently positive. Adjusted for these negative events, the company’s adjusted EPS would have been $4.74. However, a real figure might be more in the area of $4 due to some adjustments that don’t seem to be one-off adjustments but rather recurring such as acquisition-related amortization and costs. In 2018 and 2019, EPS was $5.05 and $4.31, respectively. Walgreens is guiding for a small increase in its adjusted EPS so it is fair to say that the P/E is around 8-9.5x, which seems rather cheap for such a track record and prospects ahead.

Recently, it also raised its annual dividend rate to $1.87 per share, resulting in a dividend yield of almost 5%. This marked the 45^th consecutive year of a dividend raise and the 87^th year a dividend has been paid! It seems the dividend is fairly supported by a free cash flow generation of more than $4 a share.

 

What’s next?

Walgreens has completed more than 1 million COVID-19 tests and also launched a program for businesses, so short-term we likely hear more about this. Priority will be placed on a successful turnaround of its UK business and the implementation of a large cost management program to save annual costs in excess of $2 billion by 2022. All in all, a nice long-term story at a very decent price coupled with a more than solid dividend yield.

 

Current Price

$38.04 per share