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Introduction
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) was created by the Walgreen Firm’s 2014 acquisition of Europe’s pharmacy-led well being and sweetness group Alliance Boots. WBA is an built-in pharmacy, well being care and retail chief in 9 international locations with 13,000 shops, of which nearly 9,000 are within the US.
The corporate employs 315,000 workforce members (77% in US; 18% in UK) by way of Walgreens; Boots (UK, Eire, Thailand) and Boots ventures in Germany, Indonesia, China, and the Center East; Duane Reade (130 shops in metro New York Metropolis); No7 Magnificence Firm; Benavides in Mexico; and Ahumada in Chile. About 78% of the US inhabitants lives inside 5 miles of an organization pharmacy.
Walgreens has a BBB Commonplace & Poor’s credit standing and has raised the dividend for 46 consecutive years.
New CEO Rosalind (Roz) Brewer, 59, is main the corporate towards a broader, built-in presence within the international well being care ecosystem.
FY 2021 Outcomes
WBA’s fiscal 12 months ends August 31. Outcomes for FY2021 included $2.30 EPS from persevering with operations (up from $0.20 from FY2020), and adjusted EPS of $4.91, up 14.6% from FY2020. Gross sales elevated by 8.6% to $132.5 billion. Free money movement for FY2021 was $4.2 billion, up $65 million from FY2020.
In FY2021, Walgreens supplied 34.6 million COVID-19 vaccinations, together with 21% of the nation’s vaccinations in This autumn (June-August).
Following the Alliance Healthcare divestiture, WBA de-levered its steadiness sheet by $6.5 billion in comparison with FY2020.
Fast SWOT
Strengths: WBA has a US community of drugstores, 26,000 registered pharmacists and 54,000 pharmacist technicians, institutional relationships with healthcare suppliers and reimbursement payers, and a major Funding Portfolio of healthcare belongings that features a 28.5% stake in AmerisourceBergen (ABC). The COVID pandemic, notably vaccinations, has enabled Walgreens to increase its buyer base because it integrates a broader vary of healthcare companies past pharmacy and to establish undiagnosed circumstances. Roz Brewer’s administration workforce is one among WBA’s biggest strengths.
Weaknesses: Years of disappointment and present doubts amongst analysts have been chronicled in Brian Gilmartin’s 10/24/21 SA article, and have to be weighed in opposition to the potential success of Workforce Brewer’s new initiatives. Walgreens’ BBB credit standing, one notch above the minimal “funding grade” of BBB-, is decrease than I choose. As WBA rolls out its intensive built-in healthcare mannequin within the US, it is a truthful query to ask whether or not the worldwide enterprise is a robust asset or a possible dilution of administration’s focus.
Alternatives: WBA’s new Walgreens Well being division is a part of a customer-centric technique to prioritize higher native service for patrons/sufferers that want probably the most care by including 1,000 major care VillageMD websites to Walgreens clinics over the subsequent six years, rising its companies by way of CareCentrix post-acute residence care and Shields Well being Options hospital-based specialty pharmacy alongside its Alliance Rx partnership. These initiatives complement 40 in-store Well being Nook places slated to develop to 1,200 in 5 years and to three,000 in 8-10 years (from CFO James Kehoe’s This autumn Investor Convention reply to an analyst’s query).
Threats: Ongoing threats embrace the complexity of healthcare, controversy over prices and reimbursements, robust competitors at each flip and important regulatory pressures from varied governments. The well-known Amazon (AMZN) risk was ably described by Beersheba Analysis’s 11/27/21 SA article. Nonetheless, the biggest risk is the potential failure of WBA to implement the excessive expectations for its new built-in mannequin to cut back affected person prices, present simpler entry to affected person care and to supply aid for overworked pharmacists.
F.A.S.T. Graph
WBA closed at $49.50 on 12/10/21. The 52-week vary has been $39.03-57.05. The (black) value line reveals WBA has made a “spherical journey” since mid-2012. Adjusted earnings (darkish inexperienced shaded space) plateaued in 2018-19, whereas the dividend (mild inexperienced shaded space) has grown at a gradual tempo. The dividend yield (pink line) was 2% or much less from 2014-17, however over 5% throughout the pandemic crash of 2020. The graph initiatives low adjusted earnings development, with 19 analysts averaging a flat YoY 2022 projection of $4.91 per share.
From F.A.S.T. Graphs
The Dividend
The present quarterly dividend is $.4775, annualized to $1.91. Primarily based on the typical analyst estimate of $4.91 for 2022 adjusted earnings, the present payout ratio is 38.9%. Primarily based on the $2.30 trailing 12-month GAAP earnings, the payout ratio is 83.0%. On a GAAP foundation, the payout ratio averaged 38.0% for 2017-2019.
At a 12/10/21 closing value of $49.50, the present yield was 3.86%. The excessive yield for the previous 5 years ranged from 2.0% in 2017 to five.6% in 2020. The common excessive yield was 3.8%.
Funding Thesis
Walgreens intends to leverage its “hyper-local” presence and its measurement and scale to compete with Amazon and different on-line pharmacy suppliers:
- “Persistent sufferers make up 60% of the grownup US inhabitants however incur 90% of US well being care prices. And we now have extra entry to these sufferers than some other supplier within the care continuum. … Right this moment, we take care of 35 million persistent sufferers, contributing 84% of our revenues. And there is way more we are able to do to assist these sufferers have higher outcomes.” (John Standley, within the current This autumn Investor Convention)
- With AmerisourceBergen, WBA operates 22 retail distribution facilities (17 within the US) totaling 14 million sq. toes. In pharmacy, Walgreens will develop its majority-owned Innovation Associates [iA] belongings from two micro achievement facilities to eleven by the tip of FY2022, and to 22 services serving over 8,500 pharmacies by 2024, to extra effectively fill prescriptions and ship prescriptions to pharmacies, releasing pharmacists’ time for extra direct buyer/affected person contact.
WBA advantages from CEO Rosalind Brewer’s prior expertise at Kimberly-Clark (KMB), Procter & Gamble (PG) and Starbucks (SBUX). The energy of her visionary management was evident in WBA’s current Investor Convention.
WBA will quickly identify a Walgreens Well being section chief to affix Brewer, CFO James Kehoe and Walgreens President John Standley in senior administration.
Walgreens is 2.8% of my 36-stock retirement earnings portfolio. I exploit eight components to price corporations:
- S&P Credit score Score: Walgreens’ BBB ranking will get 1 level on a scale starting from 9 for AAA to 1 for BBB.
- Consecutive Years of Dividend Will increase: WBA’s 46 years earn a 4.6 rating, (years divided by 10). Portfolio scores vary from 0.5 to six.5.
- Present Dividend Yield: Multiply Walgreens’ 3.86% yield by 100 for a rating of three.86. Scores vary from 0.5 to 7.2.
- Payout Ratio: F.A.S.T. Graphs’ estimated adjusted 2022 EPS of $4.91 signifies a 38.9% payout ratio. Subtract from 100% and multiply the remaining 61.1% by 10, for a 6.11 rating. The portfolio vary is 0.6 to eight.4.
- 5-year Dividend Development Price: WBA’s 5.15% development price (per In search of Alpha) is multiplied by 100, or 5.15. For parity with different components, I multiply this by 0.5, for a rating of two.58. Scores vary from 0.8 to 10.9.
- In search of Alpha’s Quant Rating: WBA’s 3.10 is an goal analysis based mostly on over 100 metrics relative to different corporations within the inventory’s sector. Rankings vary from 1.0 (very bearish) to five.0 (very bullish). Portfolio scores vary from 2.18 to 4.65.
- Dividend Security Rating: Merely Secure Dividends provides WBA a security rating of 79. Divide by 10, for a rating of seven.9. The portfolio vary is 4.0 to 9.9.
- Lengthy-term Debt to Whole Capital: Walgreens’ 4.738 rating is predicated on its LT debt to capital (per F.A.S.T. Graphs) of 52.62% subtracted from 100%, or 47.38%, multiplied by 10. Portfolio scores vary from 2.16 to eight.60.
These eight components give Walgreens a mixed rating of 32.68, which ranks twenty sixth among the many 36 portfolio corporations. Scores vary from 23.52 to 47.12.
