Created through the combination of Walgreens and Alliance Boots in 2014, Walgreens Boots Alliance is a leading pharmacy retailer and drug distributor in the world. It is the largest retail pharmacy across the USA and Europe. The company also has a presence in 25 other countries
Walgreens’ operations can be organized into three segments – Retail Pharmacy USA is the largest accounting for ~75% of 2018 revenue (prescription drugs and general merchandise), Retail Pharmacy International (9% – prescription drugs and retail health, beauty, toiletries, and other consumer products) and Pharmaceutical Wholesale (16% – wholesaling and distribution of brand-name pharmaceuticals). Its retail segment consists of 18,500 stores operating in 11 countries with over 390 distribution centers.
Walgreens has a huge portfolio of iconic brands like Walgreens, Duane Reade (U.S.), Boots and Alliance Healthcare, as well as health and beauty product brands such as No7, Botanics, Liz Earle, and Soap & Glory.Investment Data
- Opportunity Score: 94
- Ticker: NASDAQ:WBA
- Sector: Consumer Defensive
- Industry: Retail - Defensive
- Market Cap: 48.76B
- P/E: 10.59
- Dividend Yield: 3.39
- Dividend Payout Ratio: 35.81
- FFO Payout Ratio: Dividend Snapshot Members Only
- FCF Payout Ratio: Dividend Snapshot Members Only
- Chowder Score: Dividend Snapshot Members Only
- Piotroski-F Score: Dividend Snapshot Members Only
- 3, 5, 10-year Revenue Growth: Dividend Snapshot Members Only
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
Walgreens Boots Alliance is a trusted healthcare service provider with more than 100 years of experience. It operates one of the largest global pharmaceutical wholesale and distribution networks, with over 390 distribution centers delivering to more than 20 countries worldwide. The company has built an unmatched supply chain and procurement expertise over the years. About 76% of the U.S. population lives within five miles of a Walgreens retail pharmacy, making it very accessible for the people.
Walgreens has been around since the last century delivering high quality and cost-effective healthcare products and solutions to the people. The company has developed a strong reputation for quality, reliability, and trust. People are very sensitive about choosing a reliable healthcare partner, but once they find one people generally stick around. Some of Walgreens’ popular brands include names like Almus (generic medicines), Botanics (natural skincare range) and No7 (leading UK skincare brand).
Over the years, Walgreens has developed key skills like product innovation and development, packaging and product marketing capabilities. The company has made strong partnerships with some of the world’s leading companies which have enabled it to expand its healthcare offering to diverse communities. Most of Walgreens’ retail pharmacy sales are to customers covered by third-party payers who agree to pay partly or fully a customer’s eligible prescription purchases. This significantly increases the revenue visibility. Walgreens is undertaking a transformational cost management program, which is on track to deliver $1.5 billion in annual cost savings by FY 2022. Since its combination with Alliance Boots in December 2014, Walgreens has a strong focus on operational efficiencies and cost reduction which should support top-line growth.
A diverse geographic footprint, large scale and a host of trusted brands are the company’s key competitive advantages.
Walgreens Boots has paid a dividend for more than 80 years and has raised them for 44 consecutive years making it a Dividend Aristocrat. It also has a share repurchase program. The company has an impressive track record of increasing dividends by more than 15% CAGR over the last decade. Walgreens has a very safe payout ratio of just ~36% and a dividend yield of 3.5%. The company announced a dividend increase of ~4% recently and should keep increasing dividends in the low to mid single-digit level in the coming years. However, the pace of dividend growth could be slower, given the management’s focus on cutting costs.
Walgreens is well positioned to expand customer offerings in existing markets and capture attractive opportunities in emerging markets. The company has also been growing through acquisitions. These key acquisitions have made Walgreens Boots one of the largest medical and wellness products sellers in the world.
Walgreens’ efforts on fortifying its in-house product research and development capabilities further strengthen its global brands’ portfolio. Measures like revamping of stores, significant investment in technology, emphasis on own branded products (especially beauty and wellness segment) should aid future earnings growth. Trends such as a growing aging population, increasing life expectancy, increases in the availability of generic drugs and development of innovative drugs act as strong tailwinds for Walgreens.
The retail pharmacy and pharmaceutical wholesale industries across the globe are highly competitive. The industry is witnessing increased consolidation activities and an evolving competitive landscape in recent years. Given its large scale and size, Walgreens is favorably placed to benefit from this scenario. Walgreens competes with various local, regional, national and global retailers, ranging from pharmacies, grocery stores, convenience stores to mass merchants, online pharmacies and other discount merchandisers. The company is facing fierce competition from rising online drug retailers and stores like Amazon.com and others. Walgreens’ well-located stores and fastest delivery options are few of the company’s strategies to combat increasing online competition.
Walgreens is in a good position to leverage the size, scale, and expertise and benefit from the growing pharmaceutical needs of the people worldwide. Many decades of experience, its international presence, and strong global reputation makes its a preferred healthcare partner of choice. The company should also gain from the strong long-term utilization outlook for prescription drugs. Walgreens is well on its path to becoming a Dividend King by 2026.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.