We've been asking ourselves recently if the market has placed a fair valuation on Walgreens Boots Alliance. Let's dive into some of the fundamental values of this large-cap Consumer Staples company to determine if there might be an opportunity here for value-minded investors.
Trades Below Its Graham Number but Has an Elevated P/E Ratio:
Walgreens Boots Alliance, Inc. operates as a pharmacy-led health and beauty retail company. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 24.36 and an average price to book (P/B) ratio of 4.29. In contrast, Walgreens Boots Alliance has a trailing 12 month P/E ratio of -5.5 and a P/B ratio of 0.86.
When we divide Walgreens Boots Alliance's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -1.6. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
The Business Is Unprofitable and Its Balance Sheet Is Highly Leveraged:
| 2017-10-25 | 2018-10-11 | 2019-10-28 | 2020-10-15 | 2021-10-14 | 2022-10-13 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $118,214 | $131,537 | $120,074 | $121,982 | $132,509 | $132,703 |
| Gross Margins | 25.0% | 23.0% | 23.0% | 21.0% | 21.0% | 21.0% |
| Operating Margins | 5% | 5% | 4% | 1% | 3% | 1% |
| Net Margins | 3.0% | 4.0% | 3.0% | 0.0% | 2.0% | 3.0% |
| Net Income (MM) | $4,078 | $5,024 | $3,982 | $457 | $2,542 | $4,338 |
| Net Interest Expense (MM) | -$693 | -$616 | -$650 | -$613 | -$905 | -$400 |
| Depreciation & Amort. (MM) | -$1,654 | -$1,770 | -$2,038 | -$1,927 | -$1,973 | -$1,990 |
| Earnings Per Share | $3.78 | $5.05 | $4.31 | $0.52 | $2.93 | $5.01 |
| EPS Growth | n/a | 33.6% | -14.65% | -87.94% | 463.46% | 70.99% |
| Diluted Shares (MM) | 1,078 | 995 | 924 | 880 | 866 | 866 |
| Free Cash Flow (MM) | $8,543 | $8,976 | $7,179 | $6,768 | $6,481 | $4,299 |
| Capital Expenditures (MM) | -$1,292 | -$712 | -$1,585 | -$1,284 | -$926 | -$400 |
| Net Current Assets (MM) | -$17,982 | -$23,589 | -$24,747 | -$47,967 | -$41,330 | -$42,816 |
| Long Term Debt (MM) | $12,684 | $12,431 | $11,098 | $33,968 | $29,828 | $32,132 |
| Net Debt / EBITDA | 1.36 | 1.73 | 2.38 | 14.32 | 5.49 | 10.37 |
Walgreens Boots Alliance suffers from slimmer gross margins than its peers, weak operating margins with a negative growth trend, and declining EPS growth. The firm's financial statements also exhibit a deteriorating pattern of cash flows and a highly leveraged balance sheet. Walgreens Boots Alliance has weak revenue growth and a flat capital expenditure trend.
