11 Jul

Walgreens Hikes Dividend, Stock Continues to Underperform


Dividend increased 4%

On Wednesday, Walgreens Boots Alliance (WBA) announced a 4% hike in its quarterly dividend. The new quarterly dividend of $0.4575 or $1.83 annually will be payable on September 12. Walgreens Boots Alliance is a dividend aristocrat. The company has increased its dividend consistently for more than 25 years.

Including the recent hike, Walgreens Boots Alliance has increased its dividend for the 44th consecutive year. Last year, the company raised its quarterly dividend 10%. The current dividend yield was 3.3%.

Walgreens Hikes Dividend, Stock Continues to Underperform

Stock underperformed

Walgreens Boots Alliance stock has fallen 18.7% on a YTD (year-to-date) basis as of Wednesday. The stock’s underperformance reflects higher reimbursement pressure on margins and weakness in retail sales in the UK. The company’s management lowered its EPS growth outlook in the second quarter, which reduced its shares.

Higher reimbursement pressure is also taking a toll on CVS Health’s (CVS) stock price. So far, CVS Health stock has fallen 15.5% this year. Besides higher reimbursement pressure, increased interest expenses and the higher outstanding share count are impacting the bottom line and stock.

Given the recent decline, Walgreens Boots Alliance stock trades at a low valuation multiple. The stock trades at a forward PE ratio of 9.4x, which ~35% lower than its average historical multiple of 14.5x. Despite the low valuation, the recovery in Walgreens stock could be limited due to soft sales growth and lower earnings.

Analysts’ consensus estimate

Walgreens top-line growth slowed as it annualized the Rite Aid acquisition. Analysts expect the company’s top line to mark low-single-digit growth in the coming quarters, which reflects challenges in retail sales due less emphasis on tobacco. The weakness in Boots UK will likely hurt the comparable retail sales.

Analysts expect Walgreens Boots Alliance’s bottom line to decline in the near term, which reflects higher reimbursement pressure and lower retail sales. Store and labor investments were still a drag.

Analysts expect the company’s adjusted EPS to fall 4.5% in the fourth quarter. Analysts expect Walgreens Boots Alliance’s bottom line to fall in the first half of fiscal 2020.

Among the 24 analysts covering Walgreens stock, 19 recommended a “hold,” three recommended a “sell,” and two recommended a “buy.” Analysts’ consensus target price of $58.50 per share indicates an upside of 5.3% based on its closing price of $55.57.

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