Stock Analysis & Ideas

Walgreens: Dividends and Valuation Indicate a Bargain

Walgreens Boots Alliance (WBA) operates retail pharmacies in the U.S. and internationally. I am bullish on the stock.

For many U.S.-based residents who need to pick up their medications and health-beauty items, Walgreens is their go-to source for these products.

Should WBA stock be your go-to source for value and yield, though? I believe the answer is yes, regardless of your experience level as an investor.

Walgreens is the type of company that rewards its shareholders over the long term. It’s a great company for beginners as well as intermediate and experienced investors to take a stake in.

Plus, WBA stock is trading at a great price now. So, why not learn more about the company and the stock?

Breaking Down the Numbers

Momentum-focused traders might not like the following statistics. They may see WBA stock’s trajectory as a downtrend and avoid the stock because “the trend is your friend.”

Yet, that could be a hasty decision. Instead of shunning Walgreens shares, why not consider a contrarian view? From that lens, you should see the overall picture quite differently.

First of all, Walgreens has a trailing 12-month price-to-earnings (P/E) ratio of 5.9. That number should whet the appetite of any contrarian investor. It suggests that, compared to Walgreens’ earnings, the share price is quite reasonable.

Next, we can observe that WBA stock is trading very close to its 52-week low of $42.90. Again, momentum-focused traders might see the glass as half-empty here. Yet, you can choose to see the glass as half-full, as a stock trading near its 52-week low can be a real bargain.

A Dividend Darling

So far, you should start to see how Walgreens deserves any investor’s attention. This is a gigantic pharmacy chain that recently beat Wall Street’s second-quarter financial estimates on both the top and bottom lines.

Impressively, Walgreens reported $33.76 billion in sales for the fiscal second quarter. That’s an increase of 2.9% year-over-year – not too shabby.

There’s one more number you need to know, though. Walgreens pays out a forward annual dividend yield of 4.35%. Now, this isn’t necessarily going to make you fabulously wealthy overnight.

However, it’s a nice bonus for folks who buy and hold WBA stock for the long term. There are plenty of mega-cap companies that don’t pay anything close to 4.35%. Walgreens, in contrast, likes to reward its investors, and that’s a great sign for the company and for the stock.

Making Good Comparisons

In the retail business, sometimes you might hear the word “comps.” This term typically refers to same-store comparable sales. It’s an extremely important metric for investors who want to judge the success (or lack thereof) of any retail business.

In terms of this underappreciated metric, Walgreens passes with flying colors. This is significant since sales could be considered the lifeblood of practically any retail enterprise.

Peeking into Walgreens’ U.S.-based data from the second quarter, the company’s comparable sales increased 9.5% on a year-over-year basis. That’s the kind of growth that prospective investors should want to see from Walgreens.

Breaking this down further, Walgreens posted a 7.3% improvement in comparable pharmacy sales and, better yet, a 14.7% increase in comparable retail sales. So, we can see particular strength in the company’s retail segment.

Prescription for a Good Investment

However, don’t assume that Walgreens is lagging when it comes to filling customers’ prescriptions. In fact, comparable-store prescriptions filled increased 4.7% year-over-year during the second quarter.

The company admitted that this figure includes a positive impact of almost 275 basis points from COVID-19 vaccines. This fact might be off-putting to some skeptical investors.

Was the COVID-19 catalyst just a temporary bump for Walgreens’ comparable prescription fulfillment rate? It is true that waves of COVID-19 have risen and fallen, so that’s a factor to consider.

On the other hand, there’s no way to know for sure that people are finished with COVID-19 vaccinations. It’s entirely possible that another round of shots will be recommended. If that happens, Walgreens will undoubtedly benefit as a business.

Wall Street’s Take

Turning to Wall Street, WBA stock comes in as a Hold based on eight unanimous Hold ratings. The average Walgreens price target is $49.50, implying 13.5% upside potential.

The Takeaway

The best way to describe Walgreens as a company is rock-solid. It’s a go-to store for many people in the U.S., and Walgreens continues to generate strong revenue.

In addition, Walgreens is still a place where many people go to get their prescriptions filled and to get their vaccine shots. This includes COVID-19 vaccines, and Walgreens will assuredly be ready to provide these shots if more booster shots are recommended to the public.

Besides, WBA stock looks like a bargain, and there are numbers to show how cheap the company’s shares are right now. Additionally, Walgreens pays out a nice dividend, which income-seeking investors should appreciate. Therefore, I am bullish on WBA stock.

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