Though Walgreens Boots Alliance (WBA) had a tough fiscal 2020 (FY 2020), it is showing recovery signs that are expected to continue through the fiscal year 2021.
According to the research data analyzed and published by Finaria, the company was among the three worst-performing stocks on the Dow Jones Index in 2020. In December 2020, it was down by 26% compared to the index’s 5% increase over the same period.
It ended 2020 down nearly 30% from its January 2020 price. According to Marketwatch, it was valued at $48.50 as of February 3, 2021, up by 21.46% year-to-date (YTD). Its market value at the time was $42.28 billion.
Over the one-year period, its share price is down by 8.57%. But in the previous three months, it had gained an impressive 33.46%. For some perspective, the stock was trading above $80 at its peak in December 2018.
In FY 2020, Walgreen sales grew by a mere 2%, while its earnings per share (EPS) fell by 20.8% YoY and operating income declined by 24.9%.
Based on its FY 2021 Q1 earnings report, its prospects seem much better. During the period, Walgreens reported having low foot traffic, fewer new prescriptions as well as lower sales of cold, flu and cough medication. In spite of that, there was an increase in US pharmacy sales driving stronger than expected performance.
It posted sales of $36.3 billion, up from $34.34 billion in the prior-year period against an expected $34.95 billion according to Refinitiv. The figure was up 5.7% year-over-year (YoY) and 5.2% on a constant currency basis.
In the period, the company had a $308 million net loss, translating to 36 cents per share. Comparatively, it had posted an $845 million net profit during a similar period in fiscal 2020, equivalent to 95 cents per share.
With the exception of a charge from its investment in AmerisourceBergen, EPS during the quarter amounted to $1.22. That was slightly higher than the $1.03 estimated by Refinitiv analysts.
US Retail Pharmacy Sales Grew by 4% to $27.2 Billion in FY21 Q1
Walgreen’s top moneymaker is its US retail pharmacy segment. In FY21 Q1, the segment generated sales worth $27.2 billion, marking a 3.9% increase YoY.
Comparable pharmacy sales in the US rose by 5% YoY, while in the UK, there was a 2.5% increase. In the UK, there was a significant boost from a National Health Service reimbursement, offsetting a drop in prescription volume. Health and wellness products’ retail sales also shot up by 11.6%.
Pharmaceutical wholesale business posted the best performance. The unit had an increase of 18.6% YoY reaching $7.1 billion. On the other hand, retail pharmacy international was the worst performer. Sales in the unit sank by 6.2% YoY to $2.6 billion.
Walgreens to Sell Europe Drug Distribution for $6.5 Billion to AmerisourceBergen
The company is planning to divest its Europe drug distribution business by selling it to AmerisourceBergen in a $6.5 billion transaction. By doing so, it will focus on the pharmacy and retail segments of business.
It has closed down 232 of the 250 Walgreens stores that are slated for closure, as well as 158 out of 200 Boots UK stores. By fiscal 2022, it expects to get over $2 billion in annual savings from its cost management program. The move would drive an increase of 29% in adjusted operating income based on the pre-COVID adjusted operating income of $6.94 billion.
For 45 consecutive years, Walgreens has increased its dividends, and it is thus a Dividend Aristocrat. Based on its historical averages, the stock is currently significantly undervalued according to Nasdaq. For instance, despite its shareholder-friendly culture, it is trading at a low P/E (price-earnings) ratio of 8.2 times the expected FY21 EPS of $4.98. For perspective, over the last decade, it has been trading with an average P/E ratio of about 15.
A return to the 15 P/E ratio in FY21 would translate to a share price increase of 83% without any additional growth. In case of a slightly muted return to a ratio of 12, its stock would still soar by an impressive 46%.
Furthermore, the company’s stock average dividend yield over the past 10 years is 2.4%. However, its current dividend yield is 4.7%. Over the past three decades, it has traded for a yield surpassing 3% rarely. It has never traded for a yield of 4% or more prior to the recent trend.
If Walgreens’ stock will return to the historical average dividend yield, share price will soar by a remarkable 90%.