Tags: walgreens | amazon | fears | buying | opportunity

Walgreens: Amazon Fears Create Tempting Buying Opportunity

Walgreens: Amazon Fears Create Tempting Buying Opportunity
(Jonathan Weiss/Dreamstime)

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Monday, 16 July 2018 02:28 PM Current | Bio | Archive

Now in its 10th year, the current bull market is now the second longest bull market in history. Only the 1990s rally that ended when the tech bubble burst can claim a longer streak.

Despite the historically impressive run the market has been on, there are still some cheap dividend stocks available for investors looking for value.

Today, value is not found everywhere in the market. Instead, investors should look for stocks where a ‘story’ has negatively impacted the share price – even when the underlying business is profitable and growing.

One such stock is Walgreens Boots Alliance (WBA). While the major market indexes are trading near all-time highs, Walgreens’ stock has lost more than 17% of its value over the last year and is down 22% from its 52-week high of $83.89.

This decline in share price isn’t due to earnings results as the results have been strong…

Walgreens reported earnings results for the 3rd quarter of fiscal 2018 on June 28th. The company reported adjusted earnings per share of $1.53; 15% growth versus the same quarter a year ago.

The company now expects to earn $5.90-$6.05 per share for fiscal 2018, an increase of $0.05 at the low end of previous guidance. And, Walgreens authorized a $10 billion share repurchase program while increasing its dividend 10%, a raise slightly above its 5-year average dividend growth rate. This was the company’s 43rd consecutive annual dividend increase.

So why has Walgreens seen its share price decline over the last year? One major reason is Amazon (AMZN).

Amazon has wanted to enter the pharmacy business for some time. On April 16th, Amazon reportedly put their current plans to enter the prescription drug delivery business on hold. Shares of Walgreens spiked more than 6% on this news… But that’s not the end of the story.

More recently, Amazon announced it is acquiring PillPack. PillPack is a relatively small online pharmacy that pre-packs prescriptions for customers who take multiple medications. Walgreens stock declined 9.9% on this news.

It’s unusual for an industry leader like Walgreens to fall so severely when a tiny competitor is acquired. Walgreens is a $65-billion-dollar company with more than 13,000 stores in 11 countries.

Waltreens management has created shareholder value with intelligent acquisitions. The company acquired all of primarily European pharmacy Boots Alliance on December 31st, 2014. More recently, Walgreens attempted to purchase all of Rite Aid. Due to anti trust concerns, Walgreens was only able to acquire around half of Rite Aid’s stores. Still, this should be a long-term growth driver for Walgreens.

Moreover, Walgreens is recession-resistant. The company saw earnings per share decline just 7% from 2008 to 2009, during the depths of the Great Recession.

In addition, Walgreen appears to be undervalued relative to its own history. Shares have a price to earnings multiple of 10.9, significantly below its decade long multiple of 16.7.

Walgreens shares have been under pressure, largely due to the potential threat of Amazon’s entrance into the prescription drug delivery business. Instead of reacting to stories, investors are likely to do better by analyzing underlying business results.

Walgreens has certainly delivered on that front – and is likely to continue doing so. A solid dividend growth history, acquisitions and a price to earnings multiple well below historical norms make Walgreens a great business with a very cheap and attractive valuation.

Disclosure: I am long WBA

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.
 

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BenReynolds
Walgreens has certainly delivered on that front – and is likely to continue doing so. A solid dividend growth history, acquisitions and a price to earnings multiple well below historical norms make Walgreens a great business with a very cheap and attractive valuation.
walgreens, amazon, fears, buying, opportunity
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2018-28-16
Monday, 16 July 2018 02:28 PM
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