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Is Walgreens Still a Healthy Stock

Walgreens Boots Alliance (WBA) fell sharply after releasing 2nd quarter 2019 results, notes Ben Reynolds, an income specialist and editor of Sure Dividend.

Revenue grew 4.6% for the second quarter year-over-year. Adjusted earnings-per-share declined 5.4% year-over-year. Fiscal 2019 adjusted earnings-per-share guidance was reduced from growth of 9.5% at the median to "roughly flat". Second quarter 2019 results were very clearly not good at Walgreens. 

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All companies go through weak periods, and Walgreens is no exception. But investors need to keep in mind that Walgreens stock was already heavily discounted before this nearly 13% one-day price decline. 

Walgreens shares are now trading for a price-to-earnings ratio of less than 10 using expected 2019 adjusted earnings-per-share of ~$6.00. For comparison, the security has traded for an average price-to-earnings ratio of 15.6 from 2009 through 2018.

And this is not the first time in Walgreens history that it has experienced an earnings contraction. In fiscal 2012, earnings-per-share fell to $2.53 from $2.64 the prior year. Earnings-per-share are expected to be around flat this year.

Walgreens has a long history of success as evidenced by its 43 consecutive years of dividend increases. The company's management is especially shareholder friendly. In addition to its long dividend streak and current 3.2% dividend yield, Walgreens consistently repurchases its shares.  The company's share count is down 6.5% over the last 4 fiscal quarters alone.

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CEO Stefano Pessina has an especially good track record at Walgreens since becoming CEO in 2015.  In 2015, adjusted earnings-per-share were $3.88. They were $6.02 in fiscal 2018 for a compound rate of 15.8% annually. And Walgreens is being proactive and has a plan to return to growth after fiscal 2019.

We will be following Walgreens results closely. In our view, Walgreens remains a strong buy at current prices. We hope our readers will take a long-term view with the company and not sell based on the recent price decline. We reiterate that Walgreens remains a buy today. (Disclosure: Ben Reynolds is long shares of WBA.)

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