Walgreens Boots Alliance Inc (WBA, Financial) has recently experienced a notable daily gain of 4.2%, complemented by a three-month gain of 21.02%. Despite these gains, the company has reported a Loss Per Share of $3.57. This article seeks to explore the underlying question: Is Walgreens Boots Alliance significantly undervalued? Through a meticulous valuation analysis, we invite readers to delve into the following insights to uncover the true worth of WBA.
Company Introduction
Walgreens Boots Alliance, one of the premier retail pharmacy chains in the U.S., operates more than 8,500 locations, placing it within five miles of nearly three-quarters of the American population. The company's revenue is largely driven by prescription drug sales, which account for two-thirds of its total revenue, with Walgreens contributing to 20% of the U.S. prescription revenue. Additionally, retail products, European drug wholesale, and healthcare services bolster its income streams. With an increasing number of locations offering Health Corner and Village Medical services, Walgreens Boots Alliance is evolving into a comprehensive healthcare provider. The company's stock price of $26.03, when juxtaposed with the GF Value of $44.16, prompts a thorough examination of its intrinsic valuation.
Summarize GF Value
The GF Value is an exclusive metric that determines the intrinsic value of a stock, factoring in historical trading multiples, a GuruFocus adjustment for past performance and growth, and future business performance projections. This measure suggests that a stock's price will typically oscillate around the GF Value Line. If the price is significantly above this line, the stock may be overvalued, and conversely, if it is below, it may indicate a higher potential return. Currently, Walgreens Boots Alliance's market cap stands at $22.40 billion, with the stock price suggesting a significant undervaluation.
Because Walgreens Boots Alliance's stock appears significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, presenting a potentially attractive opportunity for investors.
Financial Strength Analysis
Investing in companies with weak financial strength may lead to a higher risk of capital loss. Therefore, assessing the financial robustness of Walgreens Boots Alliance is critical. The company's cash-to-debt ratio of 0.02 is lower than 94.34% of its peers in the Healthcare Providers & Services industry. This metric, along with a financial strength rank of 4 out of 10 by GuruFocus, points to financial challenges within the company.
Here is a visual representation of Walgreens Boots Alliance's debt and cash over the past years:
Profitability and Growth Prospects
Long-term profitability is a key indicator of a company's viability. Walgreens Boots Alliance has maintained profitability for 9 out of the past 10 years. In the last twelve months, the company reported revenue of $139.10 billion but also a Loss Per Share of $3.57. With an operating margin of -5.13%, the company's profitability is ranked 7 out of 10, suggesting fair profitability despite current challenges.
Growth is crucial in valuing a company. Walgreens Boots Alliance's 3-year average revenue growth rate is below that of 61.61% of companies in its industry, and its 3-year average EBITDA growth rate is 0%, ranking lower than its industry peers.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is instrumental in assessing its profitability. Walgreens Boots Alliance's ROIC of -5.62 is less than its WACC of 4.29, indicating that the company is not currently generating sufficient returns on its investments.
Conclusion
In conclusion, Walgreens Boots Alliance's stock appears significantly undervalued. However, the company's financial condition is poor, and its profitability is only fair. Its growth ranks below industry averages, which may be a concern for potential investors. For a detailed understanding of Walgreens Boots Alliance's financials, interested parties can review the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
