Walgreens Boots Alliance, Inc.

WBA Details

Q3FY21 Performance Update: Walgreens Boots Alliance, Inc. (NASDAQ: WBA) is engaged in the business of retail pharmacy. The market capitalization of the company as on 07 July 2021 stood at ~$41.07 billion. The company has recently provided its Q3FY21 results and has reported resilient performance during the period. The sales from continuing operations increased by 12.1% to ~$34 billion. EPS from continuing operations was reported at $1.27, compared to a loss of $2.05 in the prior corresponding quarter. Net cash from operating activities stood at $4.3 billion during the first nine months of FY21, and free cash flow was at $3.3 billion. WBA has completed the divestiture of the Alliance Healthcare businesses to AmerisourceBergen. The transaction was executed for a total consideration of $6.5 billion and 2 million shares of AmerisourceBergen. WBA plans to use the proceeds to reduce $3.3 billion in debt from its balance sheet and accelerate on the growth of its core business.

Increasing Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company has faced disruptions in its operations due to the impact of COVID-19. It also has a high debt to equity ratio and has to look for ways in order to reduce its debt.

Outlook: The company has raised its FY21 EPS guidance from mid-to-high single-digit growth to around 10% on a constant currency basis.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per a recent update, the company has started offering its retail products on Uber Eats across the United States. The stock of WBA is trading above its 52-weeks’ average levels of $57.05 - $33.36. The stock of WBA gave a positive return of ~12.48% in the past one year and a negative return of ~14.55% in the past three months. On a technical analysis front, the stock of WBA has a support level of ~$46.31 and a resistance level of ~$55.82. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with an upside of low double-digit (in % terms). We believe that the company can trade at a slight premium to its peer average EV/Sales (NTM trading multiple), considering the decent financial performance and the upgraded guidance levels. For this purpose, we have taken peers such as CVS Health Corp (NYSE: CVS), Rite Aid Corp (NYSE: RAD), Cardinal Health Inc (NYSE: CAH), to name a few. Considering the current trading levels and indicative valuation, impressive financial performance, offerings of products on new platforms and upgraded EPS guidance, we recommend a ‘Hold’ rating on the stock at the closing market price of $47.49, down by 0.44% as on 7 July 2021.

WBA Daily Technical Chart, Data Source: REFINITIV

Note: Purple Color Line Refers to Momentum Oscillator Relative Strength Index - RSI (14) Period

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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