Tuesday, November 10, 2015

Walgreens Boots Alliance, Inc. (WBA) Dividend Stock Analysis

Linked here is a detailed quantitative analysis of Walgreens Boots Alliance, Inc. (WBA). Below are some highlights from the above linked analysis:

Company Description: Walgreens Boots Alliance, Inc. is the largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

WBA is trading at a premium to all four valuations above. When also considering the NPV MMA Differential, the stock is trading at a 72.3% premium to its calculated fair value of $49.13. WBA did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

WBA earned two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1933 and has increased its dividend payments for 41 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

The NPV MMA Diff. of the $39 is below the $500 target I look for in a stock that has increased dividends as long as WBA has. If WBA grows its dividend at 4.8% per year, it will take 10 years to equal a MMA yielding an estimated 20-year average rate of 2.51%.

Peers: The company's peer group includes: CVS Caremark Corporation (CVS) with a 1.4% yield, Rite Aid Corp. (RAD) with a 0.0% yield and Wal-Mart Stores Inc. (WMT) with a 3.0% yield.

Conclusion: WBA did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of two Stars. This quantitatively ranks WBA as a 2-Star Weak stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $52.92 before WBA's NPV MMA Differential increased to the $500 minimum that I look for in a stock with 41 years of consecutive dividend increases. At that price the stock would yield 2.7%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 9.3%. This dividend growth rate is above the 4.3% used in this analysis, thus providing no margin of safety. WBA has a risk rating of 1.50 which classifies it as a Low risk stock.

With over 8,000 drugstores, WBA offers unmatched convenience with one of the the most recognized brand names in the retail pharmacy business. The company enjoys a strong market share within the relatively stable U.S. retail drug industry. Competitors such as Wal-Mart and CVS continue to put pressure on WBA's market share. The stock is trading well above my $49.13 calculated fair value and its yield of around 1.6% is below my current minimum. For now, I will continue to watch for a more favorable time to buy.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in WBA (0.0% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.

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Tags: WBA, CVS, RAD, WMT,

2 comments:

  1. Hello DGS,
    I am confused. In the section on Fair Value, you state that WBA is trading at a premium to all four valuations above and the stock is trading at a 72.3% premium to its calculated fair value of $49.13. Then, in your conclusion, you state that the stock is trading well below my $123.12 calculated fair value. I believe that these comments are contradictory. Kindly explain.
    Thanks and regards,
    MG

    ReplyDelete
    Replies
    1. MG: I failed to update the last section. It has been corrected now.

      Best Wishes,
      D4L

      Delete

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