I ask is Walgreens making money and a value investment because the drugstore operator’s stock traded at $54.51 on 10 April 2019. Yet Walgreens Boots Alliance (NASDAQ: WBA) operates 9,560 stores in the United States alone.
Moreover, Walgreens claims to fill 1.1 billion prescriptions a month. In addition, Walgreens also claims to operate a drugstore within five miles of 78% of America’s population.
Yes, Walgreens makes money from those massive operations. Walgreens Boots Alliance records a gross profit of $7.755 billion on quarterly revenues of $34.528 billion, for 1st Quarter 2019. Moreover, Walgreens records a net income of $1.156 billion and an operating income of $1.518 billion for the same period.
In fact, Walgreens records an annual revenue of $136.108 billion on 28 February 2019. Hence, Walgreens is one of the largest retailers in the United States rivaling Costco Wholesale Corp (NASDAQ: COST) which records annual revenues of 147.24 billion on 31 January 2019.
How Much Cash does Walgreens Generate?
Not surprisingly, Walgreens records an operating cash flow of $735 million and a free cash flow of $412 million on February 28, 2019.
However, Walgreens Boots Alliance reports cash and short term investments of $818 million on 28 February 2018. Hence, Walgreens does not have much money in the back despite its vast size.
Conversely, Walgreens has some interesting value attributes. For instance, stock ownership insulates Walgreens’ CEO Stefano Pessina from Wall Street meddling. To explain, Pessina owns 15% of Walgreens Boots Alliance which shields him from activist investors, Crain’s Chicago Business reports.
Walgreens is a better investment than you think
Activist investors are traders or fund managers who think they know how to run the company. In particular, activist investors try to oust any CEO that does not inflate their stock prices.
Hence, Pessina is free to purse potentially lucrative partnerships with companies like Kroger (NYSE: KR), UnitedHealthGroup (NYSE: UNH), and Microsoft (NASDAQ: MSFT). For example, Kroger and Walgreens are testing grocery pickup at stores in Kentucky.
Moreover, VillageMD will open primary care clinics in Walgreen drugstores in Houston, a press release states. Thus, Walgreens can offer both healthcare and prescriptions in the same locations.
More importantly, Walgreens keeps the man who built a chain of 18,500 stores in 11 countries at its helm. Beyond the 9,560 Walgreens and Duane Reade stores in the United States, WBA operates over 2,500 Boots Alliance Stores in the United Kingdom. Other countries Walgreens operates in, include Thailand, Chile, Norway, and Ireland.
The Market Underprices Walgreens
Under these circumstances, I think Walgreens Boots Alliance is a good company Mr. Market underprices. For example, hysteria about Amazon’s (NASDAQ: AMZN) theoretical pharmacy business scares some investors away from Walgreens.
Notably, Walgreens Boots Alliance is a good dividend stock. For instance, WBA’s dividends has been growing for the past 43 years, Dividend.com reports. In addition, Walgreens shareholders enjoyed a dividend yield of 3.22%, an annualized payout of $1.76, and a payout ratio of 29.4% on 10 April 2019.
Specifically, Walgreens paid a 44₵ dividend on March 12, 2019. That dividend grew by 4₵ in 2018, rising from 40₵ on June 12, 2018 to 44₵ on September 12, 2018.
Thus, Walgreens is a good dividend stock Mr. Market is underpricing. Hence value investors need to examine Walgreens Boots Alliance.
Walgreens’ Strong Position
I like Walgreens because it has a strong position in the drugstore business in the United States.
In particular, one of Walgreen’s biggest rivals Rite Aide (NYSE: RAD) is collapsing. In addition, Walgreen’s largest direct competitor CVS Health (NYSE: CVS) is more interested than health insurance than pharmacies.
In fact, CVS Health bought the insurance company Aetna. Thus Walgreens has the advantage of a direct competitor which could leave the industry.
The Danger to Walgreen
However, Walgreen faces a host of dangerous competitors led by Walmart (NYSE: WMT) the world’s largest retailer.
Notably, Walmart; which reported an annual revenue of $514.408 billion on January 31, 2019, operates 3,956 pharmacies in the United States. Other major Walgreens competitors include Kroger, and Costco.
The gravest threat to Walmart is discounters like Kroger, Walmart, and Costco that use prescriptions as a loss leader to attract customers. Notably, companies like Walmart use pharmacies to attract declining foot traffic in the Age of Amazon.
Does Amazon Threaten Walgreens?
A long-term threat to Walgreen is an Amazon (NASDAQ: AMZN) pharmacy that delivers prescriptions directly to your home.
Amazon’s Pilpack Pharmacy is applying for state and national pharmacy licenses but regulations could limit its operations, MedcityNews reports. Hence, Walgreen; which operates in all 50 states, has an advantage over Amazon in prescription delivery.
However, I think Amazon presents no immediate threat to Walgreens. To explain, I think it will take Amazon several years to build up a serious pharmacy presence.
Will Walgreens Offer Prescription Delivery
Consequently, Walgreens has several years to prepare for Amazon competition. In particular, Walgreens could offer its own prescription delivery using a service like Instacart. Notably, Kroger, Walgreens’ partner, works closely with Instacart.
Importantly, Instacart is testing delivery of non-grocery items including Staples office supplies in Canada, Supermarket News reports. Obviously, prescriptions, cosmetics, drugs, and other items from Walgreens are natural products for Instacart to deliver.
Moreover, Instacart now delivers alcohol in 14 states, TechCrunch reports. Obviously, the service that delivers alcohol could deliver prescriptions.
In conclusion, Walgreens Boots Alliance (NASDAQ: WBA) is a good company with a bright future. I advise value investors to inspect Walgreens.