Company Profile (excerpt from Reuters): Walgreens Boots Alliance, Inc., incorporated on September 2, 2014, is a holding company. The Company is a pharmacy-led health and wellbeing company. The Company along with equity method investments, has approximately 18,500 stores in 11 countries also has pharmaceutical wholesale and distribution networks with more than 390 distribution centers delivering to more than 230,000 pharmacies, doctors, health centers and hospitals each year in more than 20 countries. The Company operates through three segments: Retail Pharmacy USA, Retail Pharmacy International and Pharmaceutical Wholesale. The Retail Pharmacy USA segment consists of the Walgreen Co. (Walgreens) business, which includes the operation of retail drugstores, care clinics and providing specialty pharmacy services. The Retail Pharmacy International segment consists primarily of the Alliance Boots pharmacy-led health and beauty stores, optical practices and related contract manufacturing operations. The Pharmaceutical Wholesale segment consists of the Alliance Boots pharmaceutical wholesaling and distribution businesses. The Company’s portfolio of retail and business brands includes Walgreens, Duane Reade, Boots and Alliance Healthcare, as well as global health and beauty product brands, including No7, Botanics, Liz Earle and Soap & Glory.
Downloadable PDF version of this valuation:
ModernGraham Valuation of WBA – December 2018
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $72,797,457,454 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 0.82 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 97.99% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 15.80 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.82 | Pass | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 0.82 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | -3.25 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $4.87 |
| MG Growth Estimate | 10.03% |
| MG Value | $139.17 |
| Opinion | Undervalued |
| MG Grade | B+ |
| MG Value based on 3% Growth | $70.64 |
| MG Value based on 0% Growth | $41.41 |
| Market Implied Growth Rate | 3.65% |
| Current Price | $76.97 |
| % of Intrinsic Value | 55.30% |
Walgreens Boots Alliance Inc qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.92 in 2015 to an estimated $4.87 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.65% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Walgreens Boots Alliance Inc revealed the company was trading above its Graham Number of $60.62. The company pays a dividend of $1.64 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 15.8, which was below the industry average of 28.23, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.11.
Walgreens Boots Alliance Inc performs fairly well in the ModernGraham grading system, scoring a B+.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$24.11 |
| Graham Number | $60.62 |
| PEmg | 15.80 |
| Current Ratio | 0.82 |
| PB Ratio | 2.82 |
| Current Dividend | $1.64 |
| Dividend Yield | 2.13% |
| Number of Consecutive Years of Dividend Growth | 15 |
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| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
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| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 8/1/2018 |
| Total Current Assets | $17,846,000,000 |
| Total Current Liabilities | $21,667,000,000 |
| Long-Term Debt | $12,431,000,000 |
| Total Assets | $68,124,000,000 |
| Intangible Assets | $28,697,000,000 |
| Total Liabilities | $41,435,000,000 |
| Shares Outstanding (Diluted Average) | 978,200,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $5.98 |
| Aug2018 | $5.05 |
| Aug2017 | $3.78 |
| Aug2016 | $3.82 |
| Aug2015 | $4.00 |
| Aug2014 | $2.00 |
| Aug2013 | $2.67 |
| Aug2012 | $2.42 |
| Aug2011 | $2.94 |
| Aug2010 | $2.12 |
| Aug2009 | $2.02 |
| Aug2008 | $2.17 |
| Aug2007 | $2.03 |
| Aug2006 | $1.72 |
| Aug2005 | $1.52 |
| Aug2004 | $1.31 |
| Aug2003 | $1.13 |
| Aug2002 | $0.99 |
| Aug2001 | $0.86 |
| Aug2000 | $0.76 |
| Aug1999 | $0.62 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $4.87 |
| Aug2018 | $4.12 |
| Aug2017 | $3.52 |
| Aug2016 | $3.26 |
| Aug2015 | $2.92 |
| Aug2014 | $2.40 |
| Aug2013 | $2.54 |
| Aug2012 | $2.43 |
| Aug2011 | $2.37 |
| Aug2010 | $2.06 |
| Aug2009 | $1.99 |
| Aug2008 | $1.90 |
| Aug2007 | $1.69 |
| Aug2006 | $1.46 |
| Aug2005 | $1.27 |
| Aug2004 | $1.10 |
| Aug2003 | $0.96 |
Recommended Reading:
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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