Walgreen Boots Alliance (WBA)

Fundamental analysis of Walgreen Boots Alliance (WBA), July 7, 2017

 

Description:

Walgreen Boots Alliance is an American pharmacy chain with many business areas in the health sector.

 

Valuation:

At $78 and a trailing P/E of 20.3, the company is expensive. Looking at an average of the past three years’ earnings, the P/E comes in at 23.7 which is not better. Because of their intangible assets the Price to Book value is also very high at 19.0.

 

Balance sheet:

The company has a Debt to equity ratio of 1.4 and a Working capital to debt ratio of 0.2 which is OK, but not extraordinary. The Net working capital is $8.9 bn which of course is a lot of cash.

Last year, the Return on equity was 14 per cent which was OK, but not extraordinary. A high Return on equity usually correlates with a high Free cash flow.

 

Free cash flow and dividend:

Last year Walgreen Boots had a Free cash flow of $6.5 bn which allows them to buy back a lot of the expensive shares that they have issued.

It also allows them to pay a dividend of 1.46 (1.9 per cent). The dividend has been uninterrupted and increasing for at least 25 years.

 

Conclusion:

The company is too expensive at these prices. Ideally I would like to see them fall by 50 per cent before dipping my toes.

There is nothing wrong with the company, but it is simply too expensive.

 

Update, August 25, 2017

Walgreen Boots is valued at 21 times last year’s earnings. If we assume that the company will make $4.00 in 2017, the forward P/E ratio comes in at 20.

Because the company has a lot of intangible assets the Price to Book comes in at 19.7, which is very high.

In summary, I would not buy shares in Walgreen Boots at this time.

 

Update, January 05, 2018

Since we last looked at Walgreen-Boots, the share has gotten marginally cheaper but at an earnings multiple of 19 the stock is still expensive if you look at the earnings alone.

On the other hand, Free cash flow yield for last year comes in at 7.6 per cent which is better than its peers.

There is nothing wrong with company. Debt seems manageable and Return on equity looks good at 14 per cent last year. The company also has a healthy $1.2bn in cash.

Conclusion:

Had the stock only been 30 per cent cheaper I would be a buyer. Now it’s a HOLD.

 

 If you would like to learn more about fundamental analysis you can do that here.

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