Walgreens Boots Alliance (WBA) is a pacesetter in retail pharmacy, meting out medicines, and accessible, high-quality care globally.
The corporate serves its clients by means of its 13,000 shops within the U.S., Europe, and Latin America. Additional, Walgreens is without doubt one of the largest consumers of prescribed drugs and lots of different well being and well-being merchandise on the planet. Due to this fact, by means of the sheer scale of its operations, Walgreens is aiming to handle the ever-increasing value of prescribed drugs.
A part of Walgreen’s up to date technique final October consists of the corporate changing into a outstanding supplier of native scientific care companies by means of leveraging its consumer-centric expertise and pharmacy community to supply value-based care entry to its clients.
Walgreens shares have been marching decrease over the previous yr, with the continuing market sell-off pushing the inventory close to its 52-weak lows. Nonetheless, the corporate’s efficiency has been enhancing currently, with profitability ranges breaching new information over the previous few quarters.
As a result of inventory’s discounted valuation and elevated dividend yield following the continuing decline, I’ve now turned bullish on Walgreens Boots Alliance.
Sturdy Earnings
Walgreens’ profitability has improved dramatically over the previous few quarters. Adjusted EPS within the earlier quarter grew 25.9% year-over-year to $1.59. Over the primary half of Fiscal 2022, Walgreens’ adjusted EPS got here in at $3.27, 38.6% greater in comparison with H1 2021, with web earnings hovering close to all-time excessive ranges for the corporate.
Efficiency was boosted by agency execution throughout all enterprise segments and elevated COVID-19 vaccinations and testing ranges. Additional, Walgreens loved sturdy retail comparable gross sales progress of 14.7% within the U.S., whereas Boots UK retail comparable gross sales grew 22% amid share good points throughout all principal classes.
VillageMD and Shields, two of Wallgreens’ most up-to-date acquisitions, have additionally been reaching glorious professional forma income progress versus their year-ago standalone outcomes, in line with administration.
Additional, the corporate’s Well being section is on observe towards its long-term goal. The app now supplies safe chat capabilities with well being advisors, improved buyer entry, and total enhanced comfort.
Internet earnings from persevering with operations elevated by $3.9 billion to $4.5 billion in the course of the first half of Fiscal 2022 in comparison with the identical interval final yr.
Nonetheless, be aware that this determine displays a $2.5 billion after-tax acquire because of the valuation of the corporate’s beforehand held fairness, and debt stakes in VillageMD and Shields and the lapping of a $1.2 billion cost. Profitability has been growing in actual phrases, with adjusted gross and working coming in at 22.8% and 4.4% in comparison with final yr’s 20.7% and three.4%.
The corporate reiterated its Fiscal 2022 adjusted EPS expectations of low-single-digit progress. Nonetheless, analysts forecast adjusted EPS of $5.04 for the yr, implying a 5.11% decline year-over-year.
That is probably on account of rising value assumptions over the subsequent a number of months. Nonetheless, we’re one other fairly worthwhile yr forward.
Juicy Dividend Yield
Walgreens counts 46 years of consecutive dividend will increase. The corporate’s outstanding dividend progress report qualifies Walgreens as a Dividend Aristocrat.
Whereas Walgreen’s newest dividend hike final summer season was by a slim 2.1%, the inventory’s yield is presently looming round 4.3%. Thus Walgreens is now amongst the highest-yielding constituents of the Dividend Aristocrats Index.
It’s a uncommon alternative to discover a high-quality firm buying and selling with such a excessive dividend yield lately.
Additional, it’s vital to notice that even when we assume roughly secure EPS this yr, the inventory’s payout ratio ought to stand near 35%. Therefore, the juicy dividend is comparatively effectively coated. Thus, it wouldn’t be unlikely to see Walgreens’ dividend progress tempo accelerating in some unspecified time in the future transferring ahead.
As a result of inventory’s ongoing decline, Walgreen’s is at the moment buying and selling at near 10x its ahead earnings, which is close to the decrease finish of its historic common. From one other viewpoint, the inventory is buying and selling at a P/B of round 1.4, which is the bottom P/B a number of Walgreens has traded at in its historical past.
In my opinion, this a number of is sort of engaging and, mixed with the 4.3% yield, it ought to present traders with a deep margin of security.
Wall Road’s Take
Turning to Wall Road, Walgreens Boots Alliance has a Maintain consensus ranking primarily based on one Purchase and eight Holds assigned prior to now three months.
The typical Walgreens value goal of $48.78 suggests 8.9% upside potential.
Takeaway
Walgreens’ inventory value has underperformed notably over the previous few years, and certain rightfully so. Nonetheless, the mix of report revenue ranges, single-digit progress expectations, a considerable yield, and a beautiful valuation a number of has fashioned a stable funding case, in my opinion.
Earnings-oriented traders are more likely to make the most of Walgreens’ hefty dividend yield and reassuring dividend progress observe report, which ought to consequence within the inventory regaining a few of its misplaced floor.
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