2022 Week 14: Walgreens Boots Alliance (NASDAQ: WBA)

Portfolio Update

The FiveTwenty portfolio received $109.67 in dividends in the past week. GPC, MDU, and TROW paid their quarterly dividends during the week.

Past Week Dividend$109.67
Current Quarter Dividend (Q1 2022)$1,173,86
LifeTime Dividend$3,284.67
Estimated Annual Dividend$4,768.08
Dividend Scorecard

The capital allocation for the week of 04/03/2022 to 04/09/2022 will be used to add to our position in Walgreens Boots Alliance (NYSE: WBA).

Decrease in Estimated Annual Dividend

This week marks the first time since the inception of the FiveTwenty portfolio that the Estimated Annual Dividend decreased from the previous week. The decline was caused by the T declaring a quarterly dividend of $0.2775 per share for Q2 2022, down from the $0.54 a share in Q1 2022. In the same announcement T outlined the details of the transaction that will spin-off WarnerMedia and merge it with Discovery Inc to for Warner Bros. Discovery, Inc (WBD).

Given that even after the dividend reduction T’s yield is still above 4%, we are not divesting out position in the company at this time. However, we will wait for the spin-off transactions to settle and re-evaluate our options in the coming weeks.

WBA – Position Update

Since our last check-in on WBA in week 39 of 2021, the company reported Q4 and FY 2021 earnings on 10/14/2021, Q1 2022 earning on 01/06/2022, and Q2 2022 earnings on 03/31/2022. In addition, the share price decreased 9.2% from $48.31 to $43.86 during the period.

TTMPrev. Update10-year median
Dividend Streak46 years46 years
Yield4.33%3.89%2.26%
Payout Ratio32.65%140.52%2
P/E7.54110.412
Entry Criteria Scorecard

1 computed using TTM adjusted EPS of $5.82 as of Q2 2022
2 computed using TTM adjusted EPS of $4.64 as of Q3 2021

Q2 2022 earnings report

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

Following a strong Q1 2022, WBA had a strong Q2 2022. Led by COVID-19 vaccinations and testing, retail comparable sales were up 14.7% in the US and 22% in the UK. Overall, revenue grew 3%, adjusted net income increased 25.8%, and adjusted EPS were 26.2% higher compared to Q2 2021.

Revenue
(in millions)
Adj. Net Income
(in millions)
Adj. EPS
.
Q2 2021$32,779$1,095$1.26
Q2 2022$33,756$1,377$1.59
% Change3%25.8%26.2%

Additional noteworthy developments during the quarter:

  • As part of the newly create Walgreens Health segment, WBA continued to roll out VillageMD co-located clinics reaching 102 open locations. The company is on track to have 200+ locations open by CY22
  • The company continued the strategic review of the Boots business.
  • As part of COVID-19 response, WBA administered 11.8 million vaccinations and 6.6 million tests in Q2. Additionally, the company launched the Walgreens COVID-19 Index to advance rapid detection of the Omicron variant.

Looking ahead, WBA re-iterated full year adjusted EPS growth in the low single digits. The company initially issued this guidance following its strong Q1 2022 earnings report.

Thesis

Why are we adding to our position in WBA?

Following the Q2 2022 earnings release, WBA’s share price experienced a sharp decrease. The decrease was most likely caused the unchanged guidance for full year EPS and material earnings contribution from the Walgreens Health segment. However, we still believe in the long-term prospects for the company and therefore view the current price weakness as an opportunity to add to our position at a very attractive valuation.

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