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Walgreens Boots Alliance: Solid Dividend, but Limited Upside

Walgreens Boots Alliance (WBA) is a global leader in retail pharmacy, providing accessible, high-quality care.

The company is the largest retail pharmacy, health, and daily living destination across the United States and Europe, with a presence in nine countries and around 13,000 stores around the world.

Further, Walgreens Boots Alliance is one of the largest purchasers of prescription drugs and many other health and well-being products globally.

Walgreens’ size, scale, and expertise should help in the company’s continuous expansion, which is likely to translate into shareholder value creation going forward.

In my view, the company is a solid dividend pick in the industry, and the stock remains reasonably valued. That said, due to its rather uninspiring upside prospects, in general, I am neutral on the stock.

Robust Profitability

Walgreen’s latest results once again demonstrated the company’s ability to report a solid bottom line. For its Q1 2022 results, the company reported sales growth of 7.8% to $33.9 billion, mirroring strong international and domestic growth.

Results exceeded expectations across business segments, powered by COVID-19 vaccinations and testing, U.S. retail comparable sales growing 10.6%, and Boots UK retail comparable sales increasing 16.3%.

Adjusted EPS came in at $1.68, an increase of 53.1% versus the comparable period last year. The company’s Transformational Cost Management Program is on the right trajectory to achieve $3.3 billion in annual cost savings by FY 2024, providing the company with a noteworthy EPS growth catalyst going forward.

Management hiked its full-year adjusted EPS guidance, expecting low-single-digit growth from flat previously. This is based on Q`1’s performance, and the company’s ongoing positive momentum. Hence we should see FY 2022 EPS close to $5.

Dividend

Walgreens Boots Alliance is one of the highest-yielding constituents in the Dividend Aristocrats Index, which includes companies that have hiked dividends every year for the last 25 consecutive years. 

The company numbers 46 years of annual consecutive dividend increases, which is amongst one of the most impressive dividend growth track records out there.

The company’s latest increase was by a tiny 2.1% last summer. However, the stock’s yield is currently hovering around 3.5%, which is on the higher end of the range of today’s yields.

Assuming the company reports EPS of around $5 this year, this implies a payout ratio of around 38.4%, which should reassure investors in terms of the dividend’s coverage.

Wall Street’s Take

Turning to Wall Street, Walgreens Boots Alliance has a Hold consensus rating, based on one Buy, seven Holds, and one Sell assigned in the past three months. At $55.11, the average Walgreens Boots Alliance stock price prediction implies just 1.4% upside potential.

Conclusion

Walgreens Boots Alliance features a great moat powered by its sheer size in the industry alone. The company continues to post robust top and bottom lines, while its dividend growth track record is a testament to its ability to deliver shareholder value through the decades.

While the stock is likely to serve income-oriented investors decently, its forward P/E of around 10 implies that it is rather reasonably valued, lacking an extraordinary upside potential ahead.

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