October 14, 2023: $23.25
Business Overview:
Walgreens Boots Alliance, Inc. is the world’s premier drug distributor, anchored by its network of drugstores in North America and Europe. As of 8/31/22, it operated 13,343 stores across the globe, including 8,889 locations in 50 states, Puerto Rico, and the US Virgin Islands. In 2022, pharmacy contributed 74% of sales; Other general merchandise, 26%. Stores average $9.9 million in annual sales. Has approximately 325,000 employees. Acquired 2,186 Rite Aid stores in September 2017. Officers and directors own 17.5% of the stock.
Maverick Guidance:
- Short-term stock buy/sell recommendation: Avoid
- Long-term stock buy/sell recommendation: Avoid
- Summary of beliefs and opinions
- An approximate 8% dividend yield does not compensate for diminished operating and financial outlook and a negative 10-year average annual total return of -5.61% (though Oct. 13).
- Rapidly declining fundamentals (revenue, cash flow, earnings, and dividend growth) reflect poor management and rapidly changing management.
- There are potential employee strikes on the near horizon.
- Despite the turnaround potential, there are too many pressing issues to consider Walgreens Boots Alliance a suitable investment for Mavericks.
- The company is a candidate to be removed from the Dow 30 index.
Consideration for Maverick Portfolio: WBA is not appropriate in any Maverick portfolio.
Internal Strength/Weakness
Strengths:
- 47 years of dividend increases.
- Strong brand recognition and customer loyalty.
- A wide product range catering to diverse customer needs.
- Successful exclusive brands offering unique and high-quality products.
- Robust pharmacy services fostering strong customer relationships.
- Popular customer loyalty program enhancing customer retention.
- Strong omnichannel presence and digital solutions improving customer experience.
- Walgreens Boots Alliance is a beneficial strategic partnership.
- Strong local community presence, enhancing customer relationships.
Weaknesses:
- Intense competition impacts market share and profitability.
- Store closures and job cuts affect company morale and reputation.
- Slow digital transformation hindering online market capture.
- Perceived as more expensive compared to some competitors.
- Aging store infrastructure affecting customer experience.
- Vulnerable to weak economic conditions and recessions.
- Vulnerability to supply chain disruptions affecting product availability.Top of Form
External Opportunities/Threats
Opportunities:
- E-commerce expansion for a larger online market share.
- International expansion to diversify revenue streams.
- Personalization and customization to strengthen customer loyalty.
- Expansion of health and wellness services to meet evolving consumer needs.
- Meeting the demand for sustainable and eco-friendly products.
- Potential partnerships and acquisitions for enhanced product offerings.
- Continuous innovation in exclusive product lines to stay competitive.
Threats:
- Intense competition impacting sales and market position.
- Changing consumer preferences affects sales strategies.
- Economic fluctuations impacting consumer spending patterns.
- Regulatory changes require additional investments and compliance efforts.
- Digital disruption challenging traditional retail models.
- The threat of counterfeit products impacting brand reputation.
- Susceptibility to supply chain disruptions affecting product availability.
Market Guidance:
- Point & Figure Pattern: (monthly chart pattern) on 02-Oct-2023 (from StockCharts)
- Consensus Analyst Ratings— MarketBeat = Hold, TipRanks = Hold.
- 9 Wall Street analysts have offered 12-month price targets for (Name) in the last 3 months. There are 1 Buy, 7 Hold, and 1 Sell. (from TipRanks)
- The average price target is $27.00, with a one-year high forecast of $37.00 and a low forecast of $22.00. (from TipRanks)
- Dividend Yield: $0.48 per share paid quarterly to yield 7.94%. (from TipRanks)
- Technical Analysis: Investing.com = Strong Sell, TipRanks = Underperform.
Value Line Guidance: (all from VL)
- Company Financial Strength Rating: B++ (possible A-)
- Share Price Safety, Market Timing, Technical Rank: 1=best. 5=worst
- Share Price Safety: 4 of 5 (poor)
- Market Timing: 3 of 5 (average)
- Technical Rank: 4 of 5 (poor)
- Stock’s Price Stability: 75/100
- Price Growth Persistence: 10/100
- Earnings Predictability: 80/100 (2024 earnings are unpredictable)
- Revenue Growth Potential: 3.00%
- Cash Flow Growth Potential: 2.00%
- Earnings Growth Potential: 1.00%
- 10-year Average Annual Total Return: -5.61%
- 10-year EPS Growth Rate: Negative
- EPS 2022: $5.04
- EPS 2023: e$4.00
- EPS 2024: e$3.75-$4.15 (unpredictable)
- Average Annual PE: 10
- PEG Ratio: N/A
- Average Annual Revenue Growth in the past 5 years: 8.00%
- Average Annual Revenue Growth for the next 5 years: 3.00%
- Average Annual Earnings Growth in the past 5 years: 1.50%
- Average Annual Earnings Growth for the next 5 years: 1.00%
- Average Annual Dividend Growth in the past 5 years: 5.5%
- Average Annual Dividend Growth for the next 5 years: 2.0%
- Average Annual Dividend Yield for the next 3 to 5 years: 4.0%
Revenue, Cash Flow, Earnings Quarterly Operations Review:
4Q2023 (FY Ending August) Quarter Highlights
- Earnings: The adjusted earnings for this quarter were slightly below expectations, and the company’s leadership cut its 2023 earnings outlook, reflecting the challenges faced throughout the year.
- Revenue: The fiscal year 2023 saw a 9% growth in reported revenue, primarily driven by its US retail pharmacy and international segments.
- Cash Flow: Efforts were made to lower capital expenditures by approximately $600 million, and the company aimed to reduce costs by at least $1 billion in fiscal 2024, indicating a proactive cash flow management approach.
3Q2023 (May) Quarter Highlights
- Earnings: The company had to revise its earnings outlook for fiscal 2023 to a lower range, indicating ongoing challenges in maintaining profit margins.
- Revenue: Despite a significant revenue rise, the growth in share earnings didn’t align with the increase. Operating margins were under pressure due to multiple factors, including declining COVID-related demand and a weaker respiratory season.
- Cash Flow: The company managed to pay down debt with proceeds from selling its shares in ABC and remaining shares in Option Care Health, indicating a stable cash flow management strategy.
2Q2023 (February) Quarter Highlights
- Revenue: In the February 2nd quarter, revenue growth was challenged due to lower contributions from COVID-19 vaccinations, testing, and various expansion efforts in the Healthcare arm. Despite these challenges, US Pharmacy operations saw year-over-year comparable script growth of 3.5%, exceeding guidance.
- Cash Flow: The cash flow was affected by the decline in certain revenue streams, yet relief was seen on the wage front as pharmacist shortages eased, indicating improved cash management.
- Earnings: Earnings were expected to return to growth in the back half of fiscal 2023, with a projected mid-20 percent increase in the latter part of the year. However, full-year earnings were projected to decline in the double-digit range due to weaker results early in the year.
Operations 3-to-5-year Outlook (Revenue, Cash Flow, Earnings) (all from VL)
- The 3-to-5-year outlook indicates continued growth in revenue and earnings, albeit reduced.
- The company’s long-run outlook is cautiously optimistic.
Financial Performance
- 10-year Average Annual Total Return: -5.61% (through Oct 13, 2023) (Worst in the Dow 30).
- 10-year EPS Growth Rate: NA
- EPS 2022: $5.04 2023: e$4.00 2024: e$3.75 (from Value Line Quarterly Report)
- Average Annual PE: 10x (VL Quarterly Report) Likely to continue declining.
- PEG Ratio: NA (FinViz)
- Dividend Growth Potential: +2.0% (VL)
- Beta: 0.80 (FinViz)
Strategic Developments:
- The company’s focus on more cost-cutting measures and AI initiatives to improve supply chain efficiency suggests a proactive approach to enhancing operational efficiency and resilience in a changing market landscape.
- This month’s appointment of Tim Wentworth as the new CEO reflects the company’s intentions to reset its growth strategy and navigate through the challenging market conditions, particularly the impact of post-COVID-19 on lower sales and consumer spending and the widespread discontent of employees.
- The potential nationwide walkouts and protests by pharmacy staff across their system underscore the persistent challenges that retail pharmacy, technicians, and other support staff face and the demand for improved working conditions.
10-Year Historical Price Chart:
https://tvc-invdn-com.investing.com/data/tvc_2f40452cb4e149d8b91a078851951a12.png
Point & Figure Chart: (from StockCharts.com)
https://stockcharts.com/freecharts/pnf.php?c=WBA,PWTAMANRNO[PA][D][F1!3!!!2!20]
