BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate BUSINESS DESCRIPTION Walgreens Boots Alliance, Inc. operates as a pharmacy-led health and wellbeing company. It operates through three segments: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale. BUY Sub-Industry: BUY RATING SINCE 12/14/2010 TARGET PRICE $81.27 Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years TARGET PRICE $81.27 90 85 80 STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change -14.21-17.94-1.89 GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues 5.28 0.73 15.66 Net Income -22.14-2.28 28.28 EPS -20.00-1.05 23.64 Rating History BUY 75 70 65 60 RETURN ON EQUITY (%) Ind Avg S&P 500 Q4 2017 14.84 18.73 13.41 Q4 2016 13.96 18.45 11.79 Q4 2015 13.67 18.58 12.91 P/E COMPARISON Volume in Millions 2016 2017 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History RECOMMENDATION We rate () a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any nesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company shows operating cash flow. 75 50 25 0 18.61 24.16 Ind Avg 25.50 S&P 500 HIGHLIGHTS Despite its growing revenue, the company underperformed as compared with the industry average of 9.7%. Since the same quarter one year prior, revenues slightly increased by 5.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share. EPS ANALYSIS¹ ($) The current debt-to-equity ratio, 0.47, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that 's debt-to-equity ratio is low, the quick ratio, which is currently 0.54, displays a potential problem in covering short-term cash needs. Q1 0.89 Q2 1.93 Q3 1.18 2015 Q4 0.02 Q1 1.01 Q2 0.85 Q3 1.01 2016 NA = not available NM = not meaningful Q4 0.95 Q1 0.97 Q2 0.98 Q3 1.07 2017 1 Compustat fiscal year convention is used for all fundamental data items. Q4 0.76 The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Food & Staples Retailing industry and the overall market on the basis of return on equity, has underperformed in comparison with the industry average, but has exceeded that of the S&P 500. 's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, reported lower earnings of $3.78 versus $3.82 in the prior year. This year, the market expects an improvement in earnings ($5.55 versus $3.78). The change in net income from the same quarter one year ago has exceeded that of the Food & Staples Retailing industry average, but is less than that of the S&P 500. The net income has decreased by 22.1% when compared to the same quarter one year ago, dropping from $1,030.00 million to $802.00 million. PAGE 1
PEER GROUP ANALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) -6% 12% UNFAVORABLE CJJD -8% EBITDA Margin (TTM) IMKTA RAD ANDE CASY KR FAVORABLE CBD CVS WILC 12% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $36.6 Million and $81.5 Billion. Companies with NA or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) -6% 12% UNFAVORABLE CJJD -25% Earnings Yield (TTM) FAVORABLE WILC ANDE COST CASY CVS KR IMKTA RAD CBD 10% Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -5% and 11.7%. Companies with NA or NM values do not appear. INDUSTRY ANALYSIS Food and staples retailing is the second largest segment of the consumer staples industry and includes wholesale food distribution, grocery retaining, specialty food stores, and drugstores. Major players are Wal-Mart Stores (WMT), CVS Health (CVS), Walgreens Boots Alliance (), Sysco (SYY), Kroger (KR), Supervalu (SVU), Andersons (ANDE), and Whole Foods Market (WFM), all of which possess unique operational models. The industry is defensive and characterized by stable growth. Food distributors maintain a specific product mix. Grocery stores are usually locally owned and have a fixed client base. They record average annual revenue of $14 million. Supermarkets rely on a distribution network to survive as they do not have enough space to store goods. Specialty stores use merchandising to attract foot traffic. Drugstores focus on prescription customers and sell over-the-counter (OTC) drugs, health and beauty aids, greeting cards, photo-finishing services, and general merchandise. Demand for basic products remains stable regardless of economic conditions. Commodity pricing pressures are being offset by corporate restructurings, which are helping to maintain margins. During periods of growth, the industry tends to outperform. The Food and Drug Administration (FDA) is the regulatory body for food manufacturers and drug retailers. Regulation begins at the initial phases of development and continues through the manufacturing phase and down the supply chain. Law makers are considering legislation to prohibit Canadian pharmacies from selling prescription drugs to US mail-order customers in order to help domestic pharmacies. Prescription drugs account for approximately 10% of the total US medical bill. Also, Medicare favors generic drugs and in doing so influences industry participants. In the past recession, consumer preference shifted towards cost-effective choices such as discount groceries. Premium organic options benefit from the improved economic climate. Lifestyle drugs have been hit hardest. However, baby boomers are now propelling growth in the drugstore segment, which is expected to expand within the consumer staples industry. Increased pharmacy traffic is not necessarily a profit driver, but it triggers impulse purchase of general merchandise and services. The industry s dependable revenue and low beta are commendable during an economic recession, but two factors will curtail long-run performance, rising raw material costs and high valuations. Food and staples retailing remains a stable business, but demand for food products is limited by the small annual US population growth. PEER GROUP: Food & Staples Retailing Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) WALGREENS BOOTS ALLIANCE 70.36 69,681 18.61 118,214.00 4,078.00 ANDE ANDERSONS INC 31.40 890 NM 3,795.33-17.06 WILC G WILLI-FOOD INTL LTD 6.77 90 39.82 83.09 2.28 COST COSTCO WHOLESALE CORP 186.53 81,512 29.66 132,735.00 2,774.00 CVS CVS HEALTH CORP 70.80 71,720 14.63 182,351.00 5,042.00 IMKTA INGLES MARKETS INC 31.90 450 13.29 3,875.68 48.69 CASY CASEYS GENERAL STORES INC 104.79 3,935 25.68 7,863.94 158.59 CBD CIA BRASILEIRA DE DISTRIB 21.85 3,644 68.28 13,734.75-94.55 CJJD CHINA JO-JO DRUGSTORES INC 1.45 37 NM 85.56-8.46 KR KROGER CO 25.90 22,827 15.42 119,242.00 1,559.00 RAD RITE AID CORP 1.81 1,926 22.63 32,091.44 89.24 The peer group comparison is based on Major Drug Retail companies of comparable size. PAGE 2
Annual Dividend Rate COMPANY DESCRIPTION Walgreens Boots Alliance, Inc. operates as a pharmacy-led health and wellbeing company. It operates through three segments: Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale. The Retail Pharmacy USA segment sells prescription drugs and an assortment of general merchandise, including non-prescription drugs, beauty products, photo finishing, seasonal merchandise, greeting cards, and convenience foods through its retail drugstores and convenient care clinics. It also provides specialty pharmacy services and mail services; and manages in-store clinics. As of August 31, 2017, this segment operated 8,100 retail stores under the Walgreens and Duane Reade brands in the United States; and 7 specialty pharmacies, as well as approximately 400 in-store clinic locations. The Retail Pharmacy International segment sells prescription drugs; and health, beauty, toiletry, and other consumer products through its pharmacy-led health and beauty stores and optical practices, as well as through boots.com and an integrated mobile application. This segment operated 4,722 retail stores under the Boots, Benavides, and Ahumada in the United Kingdom, Thailand, Norway, the Republic of Ireland, the Netherlands, Mexico, and Chile; and 637 optical practices, including 178 on a franchise basis. The Pharmaceutical Wholesale segment engages in the wholesale and distribution of specialty and generic pharmaceuticals, health and beauty products, and home healthcare supplies and equipment, as well as provides related services to pharmacies and other healthcare providers. This segment operates in France, the United Kingdom, Germany, Turkey, Spain, the Netherlands, Egypt, Norway, Romania, the Czech Republic, and Lithuania. Walgreens Boots Alliance, Inc. was founded in 1901 and is based in Deerfield, Illinois. 108 Wilmot Road Deerfield, IL 60015 USA Phone: 847-315-2500 http://www.walgreensbootsalliance.com STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 4.5 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 80% of the stocks we rate. Total Return 1.5 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 20% of the companies we cover. Efficiency 4.5 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 80% of the companies we review. Price volatility 2.0 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 30% of the stocks we monitor. Solvency 4.5 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 80% of the companies we analyze. Income 4.0 out of 5 stars Measures dividend yield and payouts to shareholders. The company's dividend is higher than 70% of the companies we track. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3
Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial FINANCIAL ANALYSIS 's gross profit margin for the fourth quarter of its fiscal year 2017 is essentially unchanged when compared to the same period a year ago. Even though sales increased, the net income has decreased. has liquidity. Currently, the Quick Ratio is 0.54 which shows a lack of ability to cover short-term cash needs. The liquidity decreased from the same period a year ago, despite already having liquidity to begin with. This would indicate deteriorating cash flow. 1.26 Q1 FY17 5.55 E 2018(E) 6.10 E 2019(E) During the same period, stockholders' equity ("net worth") has decreased by 8.07% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future. INCOME STATEMENT Net Sales ($mil) 30,149.00 28,636.00 EBITDA ($mil) 2,174.00 1,853.00 EBIT ($mil) 1,764.00 1,406.00 Net Income ($mil) 802.00 1,030.00 STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 3,504.00 10,024.00 Total Assets ($mil) 66,009.00 72,688.00 Total Debt ($mil) 12,935.00 19,028.00 Equity ($mil) 27,466.00 29,880.00 PROFITABILITY Gross Profit Margin 25.80% 26.55% EBITDA Margin 7.21% 6.47% Operating Margin 5.85% 4.91% Sales Turnover 1.79 1.61 Return on Assets 6.17% 5.74% Return on Equity 14.84% 13.96% DEBT Current Ratio 1.07 1.52 Debt/Capital 0.32 0.39 Interest Expense 193.00 171.00 Interest Coverage 9.14 8.22 SHARE DATA Shares outstanding (mil) 1,024 1,083 Div / share 0.40 0.38 EPS 0.76 0.95 Book value / share 26.83 27.59 Institutional Own % NA NA Avg Daily Volume 8,112,613 5,638,481 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4
RATINGS HISTORY Our rating for has not changed since 10/11/2010. As of 12/14/2017, the stock was trading at a price of which is 20.1% below its 52-week high of $88.00 and 10.2% above its 52-week low of $63.82. 2 Year Chart BUY: $82.56 2016 $90 $80 $70 MOST RECENT RATINGS CHANGES Date Price Action From To 12/14/15 $82.56 No Change Buy Buy Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 12/14/2017) 44.62% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 30.32% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 25.06% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION BUY. This stock's P/E ratio indicates a discount compared to an average of 24.16 for the Food & Staples Retailing industry and a discount compared to the S&P 500 average of 25.50. To use another comparison, its price-to-book ratio of 2.62 indicates a discount versus the S&P 500 average of 3.24 and a significant discount versus the industry average of 4.43. The current price-to-sales ratio is well below the S&P 500 average, but above the industry average. Upon assessment of these and other key valuation criteria, WALGREENS BOOTS ALLIANCE INC proves to trade at a discount to investment alternatives within the industry. Price/Earnings 18.61 Peers 24.16 Discount. A lower P/E ratio than its peers can signify a less expensive stock or lower growth expectations. is trading at a discount to its peers. Price/Projected Earnings 11.54 Peers 20.32 Discount. A lower price-to-projected earnings ratio than its peers can signify a less expensive stock or lower future growth expectations. is trading at a significant discount to its peers. Price/Book 2.62 Peers 4.43 Discount. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a significant discount to its peers. Price/Sales 0.61 Peers 0.54 Premium. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a premium to its industry on this measurement. DISCLAIMER: Price/CashFlow 9.93 Peers 9.73 Average. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a valuation on par to its peers. Price to Earnings/Growth 0.40 Peers 15.51 Discount. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. trades at a significant discount to its peers. Earnings Growth lower higher -1.05 Peers 2.90 Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. However, is expected to significantly trail its peers on the basis of its earnings growth rate. Sales Growth lower higher 0.73 Peers 4.21 Lower. A sales growth rate that trails the industry implies that a company is losing market share. significantly trails its peers on the basis of sales growth The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. PAGE 5