Stock Analysis Walgreen Boots Alliance

The following company analysis is about Walgreen Boots Alliance, one of the dividend aristocrats out there. In the last couple of months WBA experienced a decent drop in its share and like almost every stock in the consumer sector under performed the market.

Company Overview

Walgreens Boots Alliance, Inc. (WBA), formerly known as Walgreen Company, is the largest drugstore chain in the United States. As of January 31, 2012, the company operates 8,300 stores in all 50 states, and has over 176,000 employees. The company offers consumer goods and services, a pharmacy, and health and wellness services. It offers its products and services through drugstores, through the mail, by telephone and online. WBA was founded in 1901, and is headquartered in Deerfield, IL. Walgreen has been paying dividends since 1972, and has increased them annually since 1976. Walgreen is a dividend aristocrat, which means it has been increasing dividends for more than 25 years consecutively.

Stock analysis

Currently WBA is priced at 67.94 USD per share, which is 29.7% below its 5 year high of 96.60 USD in July 2015. The drop in the share price is again one of typical market overreactions, driven by fears of lower margins etc.. But nevertheless you always should keep in that this company will stay profitable, even they will lose some of its current margin.

Current Valuation

As you can see the current ratios are besides of the Price/Sales ratio all below the 5 year average. Using my current method to calculate a fair share price based on the 5 year average numbers, I would get a price of 89.50 USD so from that perspective the current level of the share is fair. If I use the Market Fair Value Ratio according to morningstar I would get a price  of 73.05 USD.

The outlook for WBA is expecting a 5-Year growth of 8.1% which results in a forward P/E ratio of 12.4. In my further analysis I also included a simple calculation with the following Graham Formula:

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The result was a price of 97.81 USD.

So all in all you can say that Walgreens is fairly priced and currently definitely a stock to watch in the next couple of weeks.

Dividend Overview

WBA has an impressive dividend history, the company has increased its dividend for now 41 years in a row. The average growth in the last 6 years was at 13.5%. Looking at the current pay ratio of 40.4% leaves as well enough room for future growth. In the table below you can see my dividend growth expectations for the next  years.

Financial Health

So let’s finally have a look at the most important part the financial situation of WBA. Well the I would say the financial situation of WBA is stable, it is not that impressive like it HRL but still good enough. Just the increase of the long term debt in the last years is a little disturbing. But on the other hand there is enough cashflow to reduce that in the near future.

  • Equity Ratio: 41.25%
  • Debt to Equity: 0.47

Conclusion

I think the latest decline of the share price is a good opportunity to buy WBA at its current price level. What is also a reason for me to buy US stocks is the currently strong EUR, the exchange is currently almost 1.20 USD which is not really reasonable. It is mostly affected by the mistrust in Mr. Trump and I think will not be permanently. The next point is the dividend yield of currently 2.36% is very high for such a stock like WBA. All in all for WBA looks like a good investment currently, when considering the financial health, the dividend history and the current share price.

What do you think about WBA? Would you buy it at its current price or do you even have it already in your portfolio?

Disclosure: Long WBA

I do not recommend any decision to the reader or any user, please consult your own research. Thank you for your understanding!

4 Comments

  1. WBA hasn’t made it on my watchlist yet, especially because I already own stocks of WBA’s largest competitor CVS. However, accounting for the recent price drop as well as the ongoing EUR appreciation, WBA got a lot more attractive in my eyes, too. If we’ll see a further decline in share price, I might be tempted to initiate a position at around 50 EUR.

    -David

    • Hi David,

      yes the weaker USD makes the US Stocks currently a little more attractive and if you find at the same time a stock which is underperforming the market, it is more than worth to look at.

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