Is Walgreens Stock an Attractive Bet?

Wall Street’s view of WBA

As discussed in the previous section, six analysts have downgraded Walgreens Boots Alliance (WBA) since Amazon’s (AMZN) acquisition of PillPack in late June. As a result, Walgreens’s overall ratings have come down drastically. The company, which was rated 2.3 before the acquisition on June 28, is now ranked as a 2.7. Ratings are on a scale where one is a “strong buy,” and five is a “strong sell.”

Is Walgreens Stock an Attractive Bet?

WBA is covered by 27 analysts and is recommended as a “buy” by 30% of them, a “hold” by 67%, and a “sell” by the remaining 3% of analysts. Needham and Wells Fargo are among the brokers who have set a “buy” rating on Walgreens. Evercore ISI Group, Jefferies, and Morgan Stanley are the ones who have given a “hold” recommendation, while Bank of America has set a “sell” recommendation.

In comparison, CVS Health (CVS) is rated a 1.9. The company is recommended as a “buy” by 74% of analysts and a “hold” by the remaining 26% of analysts. There aren’t any “sell” recommendations on the company.

How attractive is Walgreens stock?

While Wall Street has turned bearish on WBA recently, its stock still has a modest upside of around 5%. The company is trading at 10.5 times its next-12-month (or NTM) EPS (earnings per share) of $6.31 with NTM EPS growth potential of ~8%. The stock traded at an average of 15.5x over the last three years.

In comparison, CVS Health is trading at a forward PE of 9.6x versus a three-year average of 14x. Its earnings are projected to grow 7.4% over the next 12 months.

Dividends

Walgreens is a dividend aristocrat and has increased dividends for the last 43 years. Its stock offers a dividend yield of 2.6%. CVS Health has paid regular dividends and has a current dividend yield of 2.9%. However, the company has suspended further dividend increases to support its planned Aetna acquisition.