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Walgreens (WBA) Dividend Stock Analysis
The Walgreens Boots Alliance (WBA) dividend has been paid continuously since 1972 and increased for 47 consecutive years; qualifying the company as a Dividend Aristocrat and Dividend Champion.
Current Dividend Per Share Annualized: $1.92
Walgreens Boots Alliance (WBA) Intrinsic Value – Margin of Safety Analysis
(updated October 2022)
Normalized Diluted Earnings Per Share (TTM): $5.01
Free Cash Flow Per Share (TTM): $2.50
Cash Flow From Operation (CFO) Per Share (TTM): $4.50
Estimated Intrinsic Value: $45
Target Buy Price Based on Required Margin of Safety = $32
(Required Margin of Safety Based On Risk Stability
Grade: A = 10%, B = 20%, C = 30%, D = 40%, F = 50%)
Target SELL Price Based on Estimated Intrinsic Value = $47
(Allow Overvaluation Adjusted by Risk Stability Grade:
A = 20%, B = 15%, C = 10%, D = 5%, F = 0%)
Risk / Stability Grade: D
A grade indicates a quality company with a strong balance sheet, high earnings quality, and a positive business environment. These stocks require the slimmest margin of safety within the stock universe.
B grade indicates a company with a good balance sheet, good earning quality, and a stable business environment. The margin of safety required should be greater than stocks with an A grade but less than the average stock.
C grade indicates a company with a sufficient balance sheet, at least average earnings quality, and a reasonably stable business environment. The margin of safety required is greater than A & B stocks, but less than D & F stocks.
D grade indicates a company in good standing but has issues that could affect its stability and long term risks. D rated stocks should require a large margin of safety when purchased.
F grade indicates a company with significant issues that are currently affecting its stability and long term risks. Require an extremely large margin of safety for F rated stocks when purchased.
Financial Risk Grade: D
A grade indicates an extremely low probability of a dividend cut. This rating is reserved for companies with strong balance sheets and/or excellent dividend histories.
B grade indicates a very low probability for a dividend cut.
C grade indicates a low probability for a dividend cut and/or average safety risk.
D grade indicates there are issues that should be considered concerning future dividend payments.
F grade indicates serious dividend safety risks. Investors should complete comprehensive due diligence before investing.
Business Quality Grade: C
A grade indicates earnings quality is high or far above average.
B grade indicates earnings quality is good and/or above average.
C grade indicates earnings quality is acceptable or average.
D grade indicates earnings quality is poor and requires thoughtful due diligence.
F grade indicates the quality of the earnings is poor or far below average requiring serious due diligence.
Earnings Report: 8/31/22
AAAMP Portfolios Position Disclosures:
Dividend Growth & Income – LONG
Treasure Trove Dividend – LONG
Global Dividend Balanced – None
Global Value – None
Global Value Aggressive – None
Global High Yield – LONG
Sector: Consumer Defensive
Industry: Pharmaceutical Retailers
Walgreens Boots Alliance (WBA) operates over 15,000 locations in 50 states and 25 countries. The core defensive positioning is primarily around the pharmacy that are placed in high traffic locations. Currently, the company has the largest retail pharmacy market share (around 20%, excluding mail) which provides significant cost advantages and scale.
Annually, the company generates over $140 billion in revenue consisting of U.S. retail pharmacy (around 75%), International pharmacy (around 10%) and pharmaceutical wholesale (around 20%).
WBA has established strategic partnerships to offer incremental services to increase average revenue per customer and has an equity stakes in AmerisourceBergen (26%) and Sinopharm Holding Guoda Drugstores Co, Ltd (40%).
Walgreens Boots Alliance has at least two important competitive advantages. First, they have tremendous economies of scale due to their size. Acquisitions and mergers have produced significant cost synergies. The ten-year pharmaceutical distribution agreement between Walgreens and AmerisourceBergen should only enhance those advantages.
The second important competitive advantage is strategic assets which are the prime real estate Walgreens owns across the United States. Walgreens has the vast majority of Americans living within a few miles of one of their pharmacies.
The long term outlook for rising prescription use is almost a given. Aging populations, new breakthroughs in drugs, and increasing health care coverage all indicate that demand will be growing for the foreseeable future.
The retail pharmacy business has consolidated because it is highly competitive. Walgreens and its competitors mostly compete on price and accessibility of store locations. In addition about one-third of profits come from non pharmaceutical products which is also trending to a more competitive environment.
Walgreens size allows it to achieve efficiencies in distribution and costs that smaller retailers are unable to obtain. This is important in a competitive environment. That means WBA will most likely continue to expand through strategic partnerships (i.e. AmerisourceBergen), acquisitions (i.e Rite-Aid) , and mergers (i.e. Boots Alliance).
Walgreens faces five major threats: 1) Pharmacy Benefits Managers (PBM’s) are customers with huge pricing power. This can keep margins extremely low. 2) The front of the house (non-pharmaceutical products) are experiencing increased competition from various retailers and mass grocers. 3) Changes in Medicare, Medicaid, and Obamacare bring uncertainty. 4) Amazon. 5) Staffing and supply chain challenges have increased costs significantly!
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While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.