Case Study on Walgreens Boots Alliance (WBA) with Nobias technology
Summary
Walgreens Boots Alliance (WBA) is down by 42.48% on a year-to-date basis.
After this weakness, shares yield 5.95%.
Credible analysts are calling for upside potential north of 33%.
Walgreens Boots Alliance (WBA) is down by 42.48% on a year-to-date basis. This poor 2022 performance has pushed WBA’s medium and long-term total returns down into negative territory as well. Walgreen’s trailing 5-year and trailing 10-year price returns are -56.31% and -15.08%. This means that the stock has underperformed the S&P 500 by a wide margin during the last decade.
The SPDR S&P 500 Trust ETF (SPY) has posted gains of 42.48% during the last 5 years and gains of 153.89% during the last 10 years. And yet, despite this underperformance, several credible authors have recently published bullish reports on WBA shares, highlighting what they believe to be attractive value and a high dividend yield.
The credible Wall Street analysts that Nobias tracks agree. Their average price target implies upside potential of approximately 33%. Jeff Reeves, a Nobias 5-star rated author, recently published a bullish article on Walgreens Boots Alliance titled, “Snag a 5.8% Dividend From This Solid, Recession-Proof MVP”.
WBA Oct 2022
Reeves highlighted WBA stock as one of the most attractively valued, high yielding equities in the market today. He touched upon the company’s strong operations and forward looking growth plans, stating, “Walgreens is in the middle of a multiyear strategic initiative to emphasize higher operating margins, customer loyalty and other key operational metrics. And it’s paying off big-time, with digitization initiatives driving higher revenue and organic growth outside of brick-and-mortar operations. On top of that, at the end of its fiscal year in August, WBA announced that it had surpassed $2 billion in annual cost savings a full year ahead of its previously announced restructuring plans.”
Regarding the stock’s valuation, Reeves said, “WBA stock is valued at just under $29 billion, with a forecast of $134 billion in revenue next fiscal year – giving it a rock-bottom valuation where it trades at roughly 20% of sales. By contrast, its closest peer CVS Health (CVS) trades for about 40% of sales and staples retailers like Target (TGT) and Walmart (WMT) trade at about 65% of sales.”
Looking at the stock through a price-to-earnings lens, Reeves wrote, “Walgreens also trades at a significant discount to future profits, with a forward price-to-earnings ratio of 7.1 while CVS trades at 11.6 times earnings and WMT is in the 20s even after recent declines.”
He also touched upon WBA’s illustrious history of shareholder returns, writing, “On top of a tremendous current yield of 5.8%, Walgreens has been paying dividend for almost nine straight decades – including increasing its payout in each of the past 47 years to make it one of Wall Street’s vaunted Dividend Aristocrats.”
Reeves said that this is the type of defensive pick that he’s choosing for his portfolio in today’s volatile market environment. He concluded his article stating, “Walgreens has a solid business model, a dynamic long-term strategy and a bargain valuation that will create a safe floor under prices. And with a rock-solid 5.8% yield, there’s ample reason to venture into this leading company – even if the pundits on CNBC are telling you the sky is falling.”
Kevin Coupe, a Nobias 4-star rated author, also recently published a report which highlights Walgreen’s future growth prospects at the Morning News Beat. Coupe wrote about the company’s ongoing automation efforts, saying, “The Wall Street Journal reports that Walgreens is using robotics to help compensate for staffing shortages in its retail pharmacies, "setting up a network of automated, centralized drug-filling centers that could fill a city block. Rows of yellow robotic arms bend and rotate as they sort and bottle multicolored pills, sending them down conveyor belts. The company says the setup cuts pharmacist workloads by at least 25% and will save Walgreens more than $1 billion a year."’ Coupe continued, “The story points out that "Walgreens in the past two years has opened eight automated drug-filling centers serving 1,800 stores and plans to operate close to two dozen by 2025.”’
Gen Alpha, a Nobias 5-star rated author, recently published a bullish report on WBA stock, highlighting what they believe to be an attractive valuation after the stock’s recent sell-off. Gen Alpha wrote, “Walgreens Boots Alliance is a global leader in retail pharmacy with over a century's experience in the space. It brands itself as "America's Drugstore" and has around 13,000 locations in all 50 states and Europe and Latin America. In addition, Walgreens has a material equity stake in the drug distribution giant, AmerisourceBergen (ABC).”
Maintaining a balanced approach, Gen Alpha noted, “Longtime investors and followers of Walgreens know that the company hasn't been without its challenges. While Walgreens has traditionally enjoyed competitive advantages and stronger margins compared to smaller players, it's come under pressure in recent years in correlation with the growth in negotiating leverage of pharmacy benefit managers.” However, they stated that these fearful concerns are overstated because of WBA’s “relatively stable” core business.
Gen Alpha states that recent data supports this opinion, writing, “This is reflected by U.S. retail sales growing by 1.4% YoY (2.4% excluding tobacco) during its fiscal third quarter, with positive comparable store transactions. Moreover, WBA's Boots UK comparable sales grew at a more impressive 24%, with market share gains across all major categories.”
Furthermore, Gen Alpha said, “WBA carries a strong BBB rated balance sheet, and has plenty of flexibility. This is supported by its stake in AmerisourceBergen, of which it sold 6 million shares worth $900 million in the recent reported quarter, thereby giving WBA an alternate funding source for its growth initiatives.”
Like Reeves, Gen Alpha also put a spotlight on Walgreen’s dividend. The author noted that the stock’s recent sell-off has pushed its dividend yield up to the 6% threshold and said, “The dividend is well-protected by a 35% payout ratio and comes with a 5-year CAGR of 5%. As shown below, WBA is now yielding the highest in over 30 years.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Also, Gen Alpha discussed WBA’s relatively cheap valuation. Gen Alpha’s piece was published roughly a week later than Reeves’ and during this period of time, the stock fell roughly 5%. With the most recent leg of WBA’s sell-off in mind, Gel Alpha wrote, “I view the stock as being materially undervalued at the current price of $30.52 with a forward P/E of just 6.1, sitting at less than half of its normal P/E of 13.2 over the past decade.” They continued, “This translates to potential very strong double-digit annual returns should WBA simply revert to its mean valuation.”
In conclusion, Gen Alpha said, “WBA stock has gotten enticingly cheap and sports a historically high dividend yield that's well protected by earnings. I believe the market is overly rotated on short-term headwinds while ignoring the ongoing transformation of the enterprise. As such, the current stock price presents a strong buying opportunity on this dividend aristocrat.”
Looking at the collective opinion of the credible authors that the Nobias algorithm tracks, this bullish sentiment is not shared by all. 50% of recent reports published on WBA stock by credible authors have included a “Bearish” bias. Yet, the credible Wall Street analysts that Nobias tracks are collectively bullish on WBA. Right now, the average credible analyst price target for Walgreens Boots Alliance is $40.67. WBA shares closed the week trading for $30.52. Therefore, this average price target represents upside potential of approximately 33.2%.
Disclosure: Nicholas Ward has no WBA position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.