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Walgreens Boots Alliance Inc WBA

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Morningstar’s Analysis

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Economic Moat




Walgreens Passes the COVID-19 Trough, but Much Left to Do in First Half of 2021; Lowering FVE to $42

Soo Romanoff Equity Analyst

Analyst Note

| Soo Romanoff |

Narrow-moat Walgreens reported fourth-quarter results largely as expected and closed out a challenging fiscal year hampered by the COVID-19 pandemic. Although the challenging market conditions put a pause on many of its partnership initiatives, it also forced the management team to take a closer look at its internal operations with the maximum possible stress testing both domestically and abroad. Normalized earnings of $1.02 were slightly better than the company’s lowered expectations but were approximately 28% below the prior year. All the segments improved from the third-quarter trough and are anticipated to improve slightly in the first half of 2021, before pandemic pressures are anticipated to subside and cost savings and growth initiatives kick in. In light of the interim pause, we have lowered our fair value estimate to $42 per share from $48.

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Company Profile

Business Description

Walgreens Boots Alliance operates nearly 19,000 locations in 50 states and 25 countries. The core defensive positioning is primarily around the pharmacy that are placed in high traffic locations. Currently, the company has the largest retail pharmacy market share (around 20%, excluding mail) which provides significant cost advantages and scale. Annually, the company generates over $140 billion in revenue consisting of U.S. retail pharmacy (around 75%), International pharmacy (around 10%) and pharmaceutical wholesale (around 20%). Walgreens has established strategic partnerships to offer incremental services to increase average revenue per customer and has an equity stakes in AmerisourceBergen (26%) and Sinopharm Holding Guoda Drugstores (40%).

108 Wilmot Road
Deerfield, IL, 60015
T +1 847 315-3700
Sector Healthcare
Industry Pharmaceutical Retailers
Most Recent Earnings Aug 31, 2020
Fiscal Year End Aug 31, 2021
Stock Type High Yield
Employees 331,000