A Brief SWOT on Walgreens
Let’s wrap up this series on Walgreens Boots Alliance (WBA) by presenting a brief SWOT (strengths, weaknesses, opportunities, and threats) to gauge the company’s standing ahead of its earnings release on January 5, 2017.
Below are some of Walgreens Boots Alliance’s key strengths:
- vast network of stores and global reach – WBA has operations in 25 countries, and about 75.0% of the US population live within five miles of a Walgreens or Duane Reade retail pharmacy.
- extensive and modern network of stores in the United States – Many WBA stores offer drive-throughs and are open 24 hours.
- solid top-line growth – WBA’s top line has a 17.6% CAGR (compound annual growth rate) for the last three years, although most of it has come through the inorganic route.
- sound financial heath with low debt levels compared to industry players – WBA has a net debt to trailing 12-month EBITDA (earnings before interest, tax, depreciation, and amortization) of 1.1x compared to 2.0x for CVS and 5.7x for Rite Aid.
- healthy operating cash flow – WBA’s operating cash flow rose 38.0% in fiscal 2016 after rising 45.0% in fiscal 2015.
Below is one of Walgreens Boots Alliance’s weaknesses:
- heavy reliance on the UK retail market – WBA operates 2,500 stores in the United Kingdom under the Boots banner and derives ~11.0% of its total sales from UK markets. UK pharmacy comps (comparables) have been under pressure throughout the year on subdued demand and a reduction in government pharmacy funding.
Below are some of Walgreens Boots Alliance’s opportunities:
- Rite Aid (RAD) acquisition – The acquisition would bring greater buying power and help WBA expand into markets it hasn’t already explored.
- control over Envision Pharmaceuticals – Through the Rite Aid acquisition, WBA will gain control over Envision Pharmaceuticals, the pharmacy benefit management company that Rite Aid acquired in 2015. That will enable WBA to compete better with CVS Health (CVS). CVS merged with PBM Caremark in 2007 and is currently one of the largest pharmacy benefit management companies in the United States.
Below is one of the threats to Walgreens Boots Alliance:
- immense competition – WBA faces competition not just from drugstore specialists but also from mass merchandisers and grocers such as Walmart (WMT) and Kroger (KR).
If you’re looking to add exposure to WBA, you can consider the iShares US Consumer Services (IYC). IYC invests 2.5% of its portfolio in WBA.