Amidst the daily fluctuations of the stock market, Walgreens Boots Alliance Inc (WBA, Financial) recently experienced a 3.19% change in stock price, contrasting with a 3-month decline of 17.57%. With a notable Loss Per Share of 7, investors are prompted to question whether WBA is significantly undervalued. This article delves into the valuation analysis of Walgreens Boots Alliance (WBA), providing an insightful look into the stock's intrinsic value and its potential for long-term returns.
Company Introduction
Walgreens Boots Alliance is a leading retail pharmacy chain in the U.S., boasting over 8,500 locations and a presence within five miles for nearly three-quarters of Americans. Predominantly, the company generates its revenue from prescription drug sales, contributing to 20% of the U.S. total. In addition to prescriptions, Walgreens Boots Alliance also offers retail products, European drug wholesale, and healthcare services, with an increasing number of locations incorporating Health Corner and Village Medical services. This strategic expansion into an omnichannel healthcare provider enhances the company's market position. The current stock price of $21.68 is juxtaposed against the GF Value of $43.28, suggesting a potential undervaluation worth investigating.
Summarize GF Value
The GF Value is a unique valuation metric that calculates the fair intrinsic value of a stock. This measure is based on historical trading multiples, a GuruFocus adjustment factor reflecting past performance and growth, and projected future business performance. When a stock's price significantly diverges from the GF Value Line, it may indicate overvaluation or undervaluation, potentially affecting future returns. Walgreens Boots Alliance (WBA, Financial) is currently labeled as significantly undervalued by GuruFocus' valuation methods. This implies that the stock's long-term return could notably surpass its business growth, presenting an attractive investment opportunity.
Financial Strength
Investors should scrutinize a company's financial strength to avoid the risk of permanent capital loss. Walgreens Boots Alliance's cash-to-debt ratio of 0.02 places it lower than 93.43% of peers in the Healthcare Providers & Services industry. This indicates a weaker financial position, with GuruFocus assigning a financial strength rating of 4 out of 10.
Profitability and Growth
Consistent profitability is a hallmark of a lower-risk investment. Walgreens Boots Alliance has maintained profitability for 9 out of the past 10 years. Despite this, the company's operating margin of -0.71% is lower than 63.29% of its industry counterparts. This positions the company's profitability rank at 7 out of 10. When it comes to growth, the 3-year average annual revenue growth rate of 5.2% is subpar within the industry, and the EBITDA growth rate stands at 0%, indicating stagnation.
ROIC vs. WACC
An essential aspect of profitability assessment is the comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC). Ideally, ROIC should exceed WACC to indicate efficient capital utilization. For Walgreens Boots Alliance, the ROIC of -0.05 is less than the WACC of 3.72, suggesting inefficiency in generating cash flow relative to invested capital.
Conclusion
In summary, Walgreens Boots Alliance (WBA, Financial) presents itself as a significantly undervalued stock. The company's financial health is concerning, but its profitability remains reasonable. However, its growth prospects appear limited when compared to industry competitors. For a more detailed financial overview, investors can review Walgreens Boots Alliance's 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.
