Case Study: What Credible analysts are saying on Walgreens Boots Alliance (WBA) stock
Key Points
Performance
Walgreens Boots Alliance (WBA) shares fell by approximately 6.6% after reporting their fiscal 2023 Q1 earnings this week. During the trailing 12 months, WBA shares are down by approximately 32.3%, underperforming the S&P 500, which is down by approximately 17.6% during this same period of time, by a wide margin. Amazon shares fell by 50.7% during 2022, underperforming the S&P 500 and the Nasdaq Composite Index, which were down by 19.4% and 33.1% during 2022, respectively, by a wide margin. Johnson & Johnson shares fell by 0.46% this week. However, they’re up by 2.98% on a year-to-date basis. This compares favorably to the S&P 500, which is down 19.4% in 2022 thus far.
Event & Impact
WBA posted Q1 results, beating Wall Street’s estimates on the top and bottom lines; however, the company took significant losses on a GAAP basis due to Opioid-related charges. Amazon shares hit 52-week lows this week as higher interest rates and persistent inflationary pressures continue to hurt the sentiment surrounding shares.
Noteworthy News:
Walgreens updated full-year guidance during Q1 and is now calling for adjusted earnings-per-share to fall by roughly 10% during 2023.
Nobias Insights
50% of recent articles published by credible authors focused on WBA shares offer a “Bearish” bias. However, the average price target being applied to WBA shares by the credible analysts that the Nobias algorithm tracks is $40.67, which implies upside potential of approximately 12.2% relative to WBA’s current share price of $36.44.
Bullish Take Gen Alpha, a Nobias 5-star rated author, said, “I continue to find WBA to be attractive at the current price of $39, with a forward PE of just 8.7, sitting well below its long-term normal P/E of 15.7.”
Bearish Take Mark Roussin, a Nobias 4-star rated author, said, “2023 is expected to be a year of growth for WBA, as analysts expect the company to continue reinvesting in the business, and earnings are expected to fall.”
WBA Jan 2023
Over the last year, Walgreens Boots Alliance (WBA) shares have fallen by 32.3%. During the last month alone, WBA shares have dropped by 11.4%. Both of these figures compare poorly to the S&P 500, which has fallen by approximately 17.6% during the trailing 12 months and by -2.5% during the past 30 days.
Walgreens’ poor relative performance has pushed its valuation far below its historical norms. WBA’s share price weakness has also resulted in its dividend yield rising up to the 5.5% area. The company posted fiscal 2023 Q1 results this week, beating consensus analyst estimates on both the top and bottom lines.
The average price target being applied to WBA shares by the credible analysts that the Nobias algorithm tracks implies upside potential north of 12% (and total returns nearing 18% with the dividend factored in). However, the credible author community remains bearish, with 50% of recent articles expressing a bearish bias. In short, there is a tug-of-war going on right now between the bears and the bulls when it comes to Walgreens shares.
Bearish Nobias Credible Analysts Opinions:
In November of 2022, Mark Roussin, a Nobias 4-star rated author, published an article on Walgreen Boots Alliance, titled, “Walgreens Boots Alliance: A Great Dividend, A Better Turnaround Story” which explains why.
Roussin described the company, stating, “Walgreens Boots Alliance is a leading retail pharmacy, with Walgreens locations here in the U.S. and Boots store locations in Europe and Asia. The company started back in 1901 as a small store in Chicago, Illinois.” He also highlighted its dividend, stating, “WBA pays an annual dividend of $1.92, which equates to a dividend yield of 4.65%. The company has a low payout ratio of only 38% and they have increased the dividend for 30 consecutive years and counting, making them a Dividend Aristocrat.”
It’s worth noting, when Roussin published his piece, WBA shares were trading above $40.00. Today, they’re trading in the $36.40 area, meaning that WBA’s dividend yield now sits at nearly 5.5%. Roussin also highlighted the stock’s recent struggles, stating that the company must embark upon a turnaround saga to change investor sentiment.
Roussin is basing his bullish turnaround thesis for Walgreens on its recent management change and his belief that the company’s CEO, Roz Brewer, has what it takes to revamp this drugstore’s growth prospects. Regarding WBA’s management, Roussin wrote, “CEO Roz Brewer took the helm back in March 2021, coming over as a successful executive at Starbucks (SBUX). In fact, many pointed to her as a potential successor to Kevin Johnson, but she was offered a position at WBA that she could not pass up.” He continued, “While operating as the COO of SBUX and during her stint as CEO of Sam's Club, Roz Brewer was touted for her strong leadership as well as her ability to innovate.”
Roussin noted a recent company presentation which laid out Brewer’s path forward for the company, stating, “Innovation is exactly what she is trying to do, both from a digital standpoint as well as trying to refocus the company to be more health-care focused.” Roussin broke down her plan, stating that Brewer hopes to: Transform the business to align it with its goals, focusing on health and wellness. Building the next growth driver will come via the adoption of technology and services both in the front of the store as well as back of the store, including within the supply chain. Focus on how to strengthen the portfolio by utilizing capital assets strategically. Finally, focus on building a winning culture, something Ms. Brewer has been praised for at her most recent stops. He acknowledged that these restructuring plans are likely to hurt Walgreen’s fundamentals in the near-term.
Roussin said, “2023 is expected to be a year of growth for WBA, as analysts expect the company to continue reinvesting in the business, and earnings are expected to fall.” Currently, the analyst consensus for 2023’s earnings-per-share growth rate is -11%. As such,” he continued, “shares do not look all that appealing from that perspective, but yesterday's Walgreens is not the Walgreens of the future, at least if Roz Brewer has anything to do with it.”
However, looking further out into the future, Roussin sees strong upside potential for WBA. He concluded his report, “I would not expect only sales to grow, but margins to increase nicely, leading to further margin expansion. That is where the opportunity for Walgreens lies, but you need to be willing to wait it out.”
Bullish Nobias Credible Analysts Opinions:
In late December, Gen Alpha, a Nobias 5-star rated author, published a bullish report on WBA on Seeking Alpha, titled, “Walgreens Is Cheap At 8.7x P/E And 5% Yield”. Gen Alpha said, “WBA enjoys a strong brand that's well-recognized and trusted by consumers, which has helped to drive customer loyalty and contribute to its success over its many years of operation.“ They continued, “Walgreens also has a strong online presence and a wide range of products and services that it offers through its website and mobile app, which has helped it to attract and retain customers in the digital age.”
And, highlighting the strength of the company’s physical retail portfolio, Gen Alpha noted, “Walgreens derives leg up against online competitors such as Amazon (AMZN) due to the fact that 75% of American households live within a 5 mile radius of a Walgreens store.”
Despite its strong market share presence in the drug store industry, Gen Alpha said, “WBA has seen headwinds in recent years, as gross margins have come under pressure due to the growing power of pharmacy benefit managers and their negotiating power. Yet, the author points out that recent M&A activity has the potential to spark future growth.
Gen Alpha wrote, “Looking ahead, I see potential for its recent $9 billion acquisition of Summit Health-City MD to be a solid revenue driver going forward, as it further solidifies WBA's ongoing transition into a more holistic healthcare company.” That author also noted that after this $9 billion deal, “WBA maintains a solid BBB rated balance sheet.”
”Lastly,” Gen Alpha wrote, “I continue to find WBA to be attractive at the current price of $39, with a forward PE of just 8.7, sitting well below its long-term normal P/E of 15.7.” Regarding this historically low valuation, the author said, “I see potential for the valuation gap to close with continued momentum around WBA's transformation efforts and cost management program.” “Meanwhile,” they concluded, “investors get paid to wait with a juicy dividend yield at the current low valuation from this dividend aristocrat.”
When Walgreens Boots Alliance posted its fiscal 2023 Q1 results this week, the company beat Wall Street’s consensus estimates on both the top and bottom lines. WBA’s Q1 revenue totaled $33.38 billion, beating estimates by $340 million. Walgreen’s Q1 non-GAAP EPS came in at $1.16, beating estimates by $0.02/share. During the Q1 report, WBA’s Chief Executive Officer, Rosalind Brewer said: "WBA delivered a solid start to the fiscal year, as we continue to accelerate our transformation to a consumer-centric healthcare company. We're making significant progress in driving our U.S. Healthcare segment to scale and profit, including the recent VillageMD acquisition of Summit Health. Our core retail pharmacy businesses in both the United States and United Kingdom remain resilient in challenging operating environments. Execution across segments reinforces our confidence in achieving full-year guidance, and our strategic actions are creating long-term shareholder value."
The company highlighted a significant operating loss during Q1, stating, “Operating loss was $6.2 billion in the first quarter compared to operating income of $1.3 billion in the year-ago quarter. Operating loss in the quarter reflects a $6.5 billion pre-tax charge for opioid-related claims and litigation.”
Regarding the bottom-line, WBA also stated, “Net loss in the first quarter was $3.7 billion compared to net income of $3.6 billion in the year-ago quarter. This decrease is driven by a $5.2 billion after-tax charge for opioid-related claims and litigation offset by a $0.9 billion after-tax gain from the partial sale of the Company's equity method investment in AmerisourceBergen during the first quarter”.
Finally, the company stated, “Loss per share in the first quarter was $4.31, compared to earnings per share of $4.13 in the year-ago quarter. Adjusted earnings per share decreased 30.8 percent to $1.16, reflecting a decrease of 29.9 percent on a constant currency basis.”
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.
Yet, it appears that these are one-time negative items, and looking forward, the company provided investors with an update on full-year guidance. The company said, “Maintaining full-year adjusted EPS guidance of $4.45 to $4.65 as strong core business growth is more than offset by lapping fiscal year 2022 COVID-19 execution, and currency headwinds”.
In fiscal 2022, WBA generated $5.04 in adjusted earnings-per-share, meaning that the $4.55 mid-point of this new guidance range represents growth of approximately -10% in 2023. They also stated, “Raising full-year sales guidance to $133.5 billion to $137.5 billion reflecting Summit Health acquisition, refreshed currency rates, and first quarter sales ahead of expectations”. During the quarter, management mentioned that the company “continues to achieve strong results across its business and strategic priorities”. However, as Roussin said, this turnaround process is going to take some time and therefore, bottom-line growth appears to be a fiscal 2024 story.
Overall bias of Nobias Credible Analysts and Bloggers:
Although WBA beat Q1 expectations, the credible author community appears to be torn on the stock. 50% of recent articles published by credible authors which focused on Walgreens expressed a “Bearish” bias. Yet, the average price target being applied to WBA shares right now by the credible analyst community shows upside ahead. Currently, WBA shares trade for $36.24 and the average credible analyst price target currently sits at $40.67. This implies upside potential of approximately 12.2%.
Disclosure: Nicholas Ward has no WBA position. Nicholas Ward wrote this article for Nobias at their request with the intention 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.
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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.