Time to Check Out WBA Stock
If you are a value investor, then Walgreens Boots Alliance Inc (NASDAQ:WBA) stock deserves your attention.
The company runs one of the biggest pharmacy chain businesses in the world. And yet despite its “blue chip” status, Walgreens shares took a big tumble in recent months. Since the beginning of December 2018, WBA stock plunged 27%. That’s a huge drop for a big name company commanding nearly $60.0 billion of market capitalization.
And as you would expect, when a solid company’s stock took a hit as big as this, its value started to appear.
Right now, Walgreens Boots Alliance Inc has a price-to-earnings ratio of 18.47 times, a price-to-sales ratio of 0.67 times, and a price-to-cash-flow ratio of 13.04 times. (Source: “Walgreens Boots Alliance Inc (WBA.OQ),” Reuters, last accessed March 26, 2019.)
To put this in perspective, companies in the drug retailers industry has an average price to earnings ratio of 21.42 times, an average price to sales ratio of 1.29 times, and an average price to cash flow ratio of 15.65 times.
In other words, these valuation metrics suggest that Walgreens stock is relatively inexpensive compared to its peers.
Of course, a lower valuation could mean that investors aren’t really confident about the business. And since the company is about to report earnings soon, let’s see what Wall Street is expecting.
For the second quarter of Walgreens’ fiscal 2019, analysts expect the company to generate $34.62 billion of revenue. That would mark a 4.8% increase year-over-year. Earnings are projected to come in at $1.74 per share for the quarter, which would represent a $0.01 improvement from the year-ago period. (Source: “Walgreens Boots Alliance, Inc. (WBA),” Walgreens Boots Alliance Inc, last accessed March 26, 2019.)
Stats on Walgreens Boots Alliance Inc Stock
| Earnings Per Share Estimate | $1.74 |
| Change From Year-Ago Earnings Per Share | 0.6% |
| Revenue Estimate | $34.62 Billion |
| Change From Year-Ago Revenue | 4.8% |
| Earnings Beaten in Past Four Quarters | 4 |
Source: Ibid.
Therefore, while WBA stock hasn’t been a hot commodity, its business is actually expected to get better.
Looking back, it’s easy to see that the company was indeed on a growth path. In the previous reporting quarter, Walgreens generated $33.8 billion of revenue, representing a 9.9% increase year-over-year. It also earned an adjusted net income of $1.46 per share, up 14.1% from a year ago. (Source: “Walgreens Boots Alliance Reports Fiscal 2019 First Quarter Results,” Walgreens Boots Alliance Inc, December 20, 2018.)
And if you go even further back, you’ll see that the company has a solid track record of beating Wall Street’s expectations. Over the past 12 months, Walgreens has beaten analysts’ earnings-per-share estimates in all four quarters.
Still, I want to point out that in times of earnings releases, stocks can be extremely volatile and unpredictable. Nowadays, it’s not unusual to see a company reporting perfectly good quarterly results and its stock still declines.
Therefore, even if Walgreens Boots Alliance Inc beats both revenue and earnings expectations from Wall Street this time, it doesn’t necessarily mean that the stock would surge.
The good news is, investors of this pharmacy chain don’t really need a soaring stock to make a buck. Walgreens also pays a dividend.
With a quarterly distribution rate of $0.44 per share, WBA stock offers an annual yield of 2.8%. Note that this is a cash payout that shareholders get every three months, regardless of where the company’s stock is going.
That payout has also been on the rise. WBA stock is member of the S&P 500 Dividend Aristocrats, an elite group of S&P 500 companies that have raise their dividend every year for a minimum of 25 consecutive years.
As a matter of fact, the company is overqualified for that title: Walgreens Boots Alliance Inc has increased its dividend every year for the past 43 years. (Source: “Dividend History,” Walgreens Boots Alliance Inc, last accessed March 26, 2019.)
For those wondering whether the dividend is safe after decades of increases, a look at the company’s bottom line should be reassuring. In Walgreens’ fiscal year 2018, the company generated adjusted earnings of $6.02 per share. Its dividend payments, on the other hand, totaled just $1.64 per share for the year. Therefore, Walgreens was paying out just over 27% of its profits. (Source: “Walgreens Boots Alliance Reports Fiscal Year 2018 Results,” Walgreens Boots Alliance Inc, October 11, 2018.)
And keep in mind that if the company meets Wall Street’s expectation and earns $1.74 per share for this reporting quarter, it would have covered its $0.44-per-share quarterly dividend rate nearly four times over.
The dividend is very safe, to say the least.
The Bottom Line on WBA Stock
At the end of the day, not many companies can return an increasing amount of cash to investors every year for over four decades. And that’s what makes Walgreens Boots Alliance Inc special. The company runs one of the largest pharmacy chain businesses in the world, with more than 18,500 stores in 11 countries. Because the business is known to be recession-proof, Walgreens has done a great job at delivering recession-proof dividends to income investors.
Walgreens Boots Alliance Inc is scheduled to report fiscal 2019 second-quarter earnings on Tuesday, April 2, before market open. Like I said, the company’s share price could see some volatility after the news release. But if your goal is to collect a growing stream of dividends, then the current expectations for Walgreens’ revenue and earnings imply that there’s still plenty of room for future payout increases from WBA stock.