Walgreens is the largest drug retailing chain in the United States founded in 1901 year. Moreover due to acquisition of Alliance Boots (completed in 2014) company expanded on European markets.

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Today company consists of three parts:
• Walgreens – the largest drugstore chain in the USA, more than 8 200 retail pharmacies on the best corners in America
• Boots – international (non US) retail pharmacies, beauty retail business, mainly UK (~2 500), Mexico (~1000), together ~4 500
• Alliance & Healthcare – a leading global pharmaceutical wholesaler & distributor, cooperating with more than 200 000 pharmacies, doctors, health centers and hospitals, more than 350 distribution centers

Weighting of each segment in gross profit is presented below – main profits comes from “old” Walgreens – Retail Pharmacy USA:

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Growth expectations are presented below (this is not a forecast)

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(Source: Walgreens Boots Alliance 2015 analyst meeting financial session)

Moreover two investments (consolidated by equity method) should be emphasized:
• Guangzhou Pharmaceuticals Corporation – one of the largest pharmaceutical wholesales in China, WBA owns 50%
• Nanjing Pharmaceutical Company Limited – 7th largest pharmaceutical wholesales in China, WBA owns 12%

Trends which are favorable for company are: aging of society, growing and getting wealthier population, increasing generics penetration and development of new, innovative prescription medicines.

 

As it comes to financials (estimates):
Market cap ~ $92B
Net debt ~$12B
Payout ratio ~40%
ROE ~16%
Beta = 1.4
Dividend yield 1.7%

Estimated valuation ratios:
P/E = 11.6
EV/EBITDA = 19.2
Fiscal year ends at 31 August.

 

Walgreens Boots Alliance is one of The Dividend Aristocrats. Company is paying dividend from 1976 year. Current dividend yield is around 1.7%, which is below S&P500 average (but similar to peer – CVS). During last five years there was time when company was paying even almost 4% (short time in 2012/2013), current dividend yield is not sufficient for me.

 

Drawdown risk analysis:

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Although last years were not impressive for Walgreens as it comes to revenue growth or net income growth (but the case is consolidation of Alliance Boots) the share price raised significantly from around $27 (dividend adjusted) to around $95 in peak making valuation demanding. Current drawdown is around 12%. After such rally, high valuation, low dividend yield and slow growth in US market (single digit) I would expect higher drawdown to buy shares – around $65 would be interesting (then P/E = 14.5, nice).

 

Summing up, growing company in healthcare industry but with share price around $85 I am not interested.

 

Disclaimer WBA – no position