The Value Of High-Yielding Walgreens Boots Alliance Deepens

Walgreens Boots Alliance Falls On Mixed Results 

Walgreens Boots Alliance (NASDAQ: WBA) is one of our top picks for long-term oriented high-yield investors because of the turnaround story. The company has been working to realign itself for growth over the past few years and those efforts are working. The problem today is the turnaround story took a hit that has shares moving lower but there is an opportunity in the making. While the turnaround story took a hit that story is still in play and has the company on track to continue paying its robust 4.7% dividend yield long into the future. Trading at less than 8X its earnings, Walgreens is also a deep-value and one the institutions have been scooping up. 

The institutions have been net buyers of Walgreens stock for 7 of the last 8 quarters and that activity picked up this year. Not only did institutional buying increase in Q1 and Q2 of 2022 but the selling decreased resulting in a net add worth about $1.03 billion in shares or about 2.75% of the pre-release market cap. This has the total institutional ownership up to over 57% and growing, we believe, now that shares are even cheaper. 

Walgreens Boots Alliance Falls On Mixed Results 

Walgreens Boots Alliance Q3 results can be called nothing but mixed. The $32.6 billion in revenue is down 4.2% from last year but beat the Marketbeat.com consensus by 115 basis points. The rub is that US and International sales both missed the consensus mark with the difference made up by the sale of stock. The company sold $900 million worth of Amerisource Bergen stock in an effort to shore up capital. The mitigating factors are that sales declines are due primarily to comps versus last year’s Peak COVID sales and the ongoing decline in the same. That decline was offset in part by strong retail comps in both the US and International with International comps up 24% on economic reopening and market share gains. 

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Moving down to the margin, the margin contracted at both the gross and operating level and on a GAAP and adjusted basis but slightly less than expected. The adjusted gross margin was contracted by 60 basis points while the operating margin turned negative due to charges related to Opioid rulings in Florida. On an adjusted basis, the operating margin shrank by 33% due to deleveraging in the pharma business related to COVID vaccines and investment in Walgreens Health which seems to be doing well. On a Pro-forma basis, businesses under this umbrella grew by 65% YOY. On the bottom line, the GAAP EPS declined by 74% while the adjusted EPS fell a lesser 30% but beat the consensus by 400 basis points. The best news from the report, however, is the company’s expectations it will meet guidance for the year. 

Walgreens Boots Alliance Dividend Is Safe Enough 

Walgreens Boots Alliance's dividend is attractively high at 4.7% and it even comes with a positive outlook for growth. The company is paying out only 32% of its earnings and has a solid and improving balance sheet as well. While the company’s debt increased over the past year so did its cash pile which, along with cash flow and FCF, is more than enough to sustain dividend increases albeit small ones for the next few years at least. 

Turning to the chart, it looks like Walgreens Boots Alliance is at a critical juncture. The stock is trading at a key support level that could lead to much lower prices. As it is, it appears as if there is support at this level, so if it holds up a bottom could be in play. If not, this stock could fall to the $35 level where it would become even more attractive in both valuation and yield. 

Companies in This Article:

Company	Current Price	Price Change	Dividend Yield	P/E Ratio	Consensus Rating	Consensus Price Target
Walgreens Boots Alliance (WBA)	$11.98	flat	N/A	-1.64	Reduce	$10.70