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.”
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.
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.