Top undervalued stocks for investors include Walgreens Boots Alliance, Inc. (NASDAQ:WBA), of Deerfield, Illinois.
COVID-19’s effect on the market has reduced the prices of a number of stocks that now are poised for a rebound. With the Fed taking action to support the economy and the market whenever downward pressure seems to be building, investors appear to have less risk than usual otherwise would be the case.
Is Walgreens Boots Alliance, Inc. a Buy in Today’s Market?
Walgreens Boots Alliance, Inc. is one of the top undervalued stocks for investors to consider strongly. The company is a retail and wholesale pharmacy company that owns and operates Walgreens and Duane Reade stores in the United States, Boots stores in Europe and Asia, along with others. Walgreens has seen a 28.6% decrease in its share price since the start of the year in falling from $59 to its current $42.15. However, Walgreens is a top undervalued stock that possesses great potential to recover.
Chart courtesy of www.StockCharts.com
From 2015 to 2018, Walgreens stock price fluctuated in a range of $60 to $84 over the four-year span. But since the beginning of 2019, Walgreens has plunged 37.6%. This decrease in stock price has followed a substantial decrease in annual net income, going from $5.02 billion in 2018 to $3.98 billion in 2019.
Despite this fall, Walgreens earnings per share (EPS) in 2019 rose 17% from 2017 largely due to increased revenue and large share buybacks. What has accompanied Walgreens’ stock price pullback is a reduced price-to-earnings (P/E) ratio.
Performance of Walgreens Boots Alliance
Since the beginning of 2017, Walgreens’ P/E ratio has dropped 48.8% from 21.13 to 10.81. This significant fall is largely due to the company’s relatively low margins, as well as increased competition from online pharmacies and delivery services. This decrease in the P/E ratio means that investors now have lowered expectations of Walgreens’ profits. But the reduced P/E could prove beneficial as Walgreens appears on the verge of a post-COVID-19 comeback.
Over the last month, the share price of Walgreens has risen 5.8% from $39.70 to a high of $47.02 before settling at $42.15. Stock prices started the year relatively high but dropped with the market due to COVID-19. However, as things begin to return to normal, Walgreens should benefit. This short-term change is great to see, but investors should be looking at Walgreens as more of a long-term stock.
Significantly, the company’s Transformational Cost Management Program looks to save $1.8 billion in costs by 2022 to boost its low net margins. This is a promising program for Walgreens, which should complement a boost in sales as the spread COVID-19 begins to slow and people return to stores and doctors’ offices.
Current Dividend Yield and Payouts
Walgreens currently has quarterly dividends of $0.4575, which equal annual dividends of $1.83 and a 4.41% dividend yield. This payout marks a 3.8% increase from 2019 and makes Walgreens an attractive dividend-paying stock.
Walgreens’ current price/book ratio is 1.57, meaning it is trading above its book value. This higher book value means shares are worth more and have more liquidation value than rival pharmaceutical stocks like CVS at 1.28.
The company’s current P/E ratio of 10.83 is low, given that it used to trade at a P/E ratio above 20 just a few years ago. This low P/E ratio, combined with an incredibly low stock price of $42.15, means that Walgreens seems quite undervalued right now. It also means that the market views Walgreens as a negative or zero earnings company, which does not seem like the case in the long run. Many analysts are calling for Walgreens to reach a target stock price above $50.
What Are Others Saying About WBA?
Many other current investors and analysts are calling for Walgreens to rally back from its deficit. The number of hedge funds increasing their stakes in Walgreens is up 18% from last quarter and many analysts are expressing hopeful for improvement at WBA. The increased attention and optimism from large hedge funds and analysts signal the share price of Walgreens may be gaining traction in the market.
Key Takeaways for Walgreens Boots Alliance, Inc.
- Walgreens has been left in the dust by the market rebound but increasing revenues and massive buybacks of outstanding shares give it a reduced valuation for new investors.
- Its share price of $42.15 seems undervalued, along with a modest P/E ratio of 10.83.
- The Transformational Cost Management Program is on track to save Walgreens $1.8 billion in costs by 2022, while revenues should increase as COVID-19 restrictions ease.
- Dividend payouts are at an all-time high and its current yield of 4.41% is appealing as banks pay comparatively little to their depositors.
Key Risks for Walgreens Boots Alliance, Inc.
- Online pharmacies and prescription delivery services like Amazon and Capsule will always pose a threat to companies like Walgreens, especially amid COVID-19 when many people are staying home as much as possible to avoid the coronavirus risk.
- Problems overseas in the United Kingdom have been negatively affecting company financials, but that market only accounts for 8.5% of total revenues at Walgreens.