2021 Week 39: Walgreens Boots Alliance (NASDAQ: WBA)

Portfolio Update

The FiveTwenty portfolio received $39.00 in dividends in the past week. LMT paid its quarterly dividend during the week.

Past Week Dividend$39.00
Current Quarter Dividend (Q3 2021)$554.13
LifeTime Dividend$1,059.47
Estimated Annual Dividend$2,844.34
Dividend Scorecard

The capital allocation for the week of 09/26/2021 to 10/02/2021 will be used to add to our position in Walgreens Boots Alliance (NASDAQ: WBA).

WBA – Position Update

Since our last check-in on WBA in week 7 of 2021, the company reported Q2 2021 earnings on 03/31/2021 and Q3 2021 earnings on 07/01/2021. Additionally, the share price decreased 4.1% from $50.38 to $48.31.

TTMPrev. Update10-year median
Dividend Streak46 years45 years
Yield3.89%3.67%2.49%
Payout Ratio40.52%140.52%2NA
P/E10.41110.972NA
Entry Criteria Scorecard

1 computed using TTM adjusted EPS of $4.64 as of Q3 2021
2 computed using TTM adjusted EPS of $4.59 as of Q1 2021

Q3 2021 earnings report

Did WBA’s latest earnings report raise any warning flags?

In Q3 2021, WBA experienced strong year-over-year growth in both the International and the US segments. Revenue grew 12.1%, adjusted net earnings increased 81.6%, and adjusted EPS were 81.9% higher than Q3 2020. While Q3 2020 net earnings were especially weak for the company it is good to see the solid rebound in 2021. Additionally, for the first nine months of FY 2021, the company grew revenue 7.2%, increased adjusted net earnings 8.8%, and had higher adjusted EPS by 11%.

Revenue
(in millions)
Adj. Net Income
(in millions)
Adj. EPS
.
Q3 2020$30,364$723$0.83
Q3 2021$34,030$1,313$1.51
% Change12.1%81.6%81.9%

Additional noteworthy developments during the quarter:

  • On March 15, 2021, Rosalind Brewer succeeded Stefano Pessina as the company’s CEO.
  • WBA completed the divestiture of the Alliance Healthcare business to AmerisourceBergen for total considerations of $6.5 billion in cash and shares AmerisourceBergen of common stock.
  • Using proceeds from the Alliance Healthcare deal, WBA eliminated $3.3 billion in debt.
  • To help fight the COVID-19 pandemic, Walgreens has administered more than 25 million COVID-19 vaccinations and more than 8 million COVID-19 tests as of the Q3 earnings report. Furthermore, in the UK Boots has administered more than 3 million COVID-19 tests during the same timeframe.

Looking ahead, WBA has raised its full year adjusted EPS guidance from mid-to-high single digit growth to around 10 percent growth.

Thesis

Why are we adding WBA to the FiveTwenty portfolio?

Our investment thesis has not changed since we opened our position in WBA. Furthermore with the first 3 quarters of 2021 in the books, WBA has demonstrated the resilience of its business model and its ability to quickly overcome the COVID-19 headwinds.

Furthermore, with the share price below the level it was at our initial investment despite improving earnings outlook, we view this as an opportunity to add to our position at what remains an attractive valuation.

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