Money Smarts: A U.S. Stock That’s Still a Buy
It’s been a rough two months for the U.S. stock markets. All the major indexes have been in retreat. Between Sept 20 and Nov. 23, the S&P 500 dropped just over 10 per cent, entering official correction territory.
But while the broad market has pulled back, not all sectors have suffered equally. Some stocks have even gained ground, defying the sell-off.
Here is one that I have recommended to readers of my Internet Wealth Builder newsletter. I reviewed it recently and concluded it is still a buy, despite the current market turbulence. Here are the details. Figures are in U.S. dollars.
Walgreens Boots Alliance (NYSE: WBA)
Background: Walgreens Boots is the dominant player in the retail pharmaceutical sector in the U.S. and Europe. With its associated companies, it has a presence in 25 countries and employs more than 385,000 people. The company has one of the largest global pharmaceutical wholesale and distribution networks, with more than 390 distribution centers delivering to more than 230,000 pharmacies, doctors, health centers, and hospitals each year. In addition, Walgreens Boots Alliance is one of the world’s largest purchasers of prescription drugs and many other health and wellbeing products. In June, the company became part of the Dow Jones Industrial Average, replacing General Electric.
Performance: The shares took a brief dip in mid-month but then rallied. They are currently trading 16 per cent above the price on Oct. 1.
Recent developments: The company reported fourth-quarter and year-end 2018 financial results on Oct. 11. Sales for the quarter came in at $33.4 billion, which was slightly below expectations. However, adjusted net earnings per share beat projections, coming in at $1.4 billion, up 4.5 per cent. Adjusted earnings per share were $1.48, up 13 per cent compared with the same quarter a year ago.
For the full fiscal year, sales increased 11.3 per cent to $131.5 billion. On a constant currency basis, the increase was 10 per cent. Adjusted net earnings were up 8.8 per cent to $6 billion (8 per cent on a constant currency basis). Adjusted earnings per share increased 18 per cent to $6.02.
The company issued 2019 guidance of 7-12 per cent in estimated growth in adjusted earnings per share, at constant currency rates. The guidance assumes current exchange rates for the rest of the fiscal year and results in an adjusted EPS range of $6.40 to $6.70 for fiscal 2019.
CEO Stefano Pessina said the integration of the recently acquired Rite Aid stores is on track, “and our pharmacy market share in the U.S. increased year-over-year on an annual basis. We are making progress on our partnership strategy both in the U.S. and internationally, including our most recent announcements with LabCorp, Kroger and Alibaba, which will provide additional opportunities for future growth.”
Dividends and buybacks: The stock pays a quarterly dividend of $0.44 per share ($1.76 per year). It was raised by 10 per cent in August. Current yield is 2.1 per cent.
The company has a $10 billion share repurchase program in place, which includes the expected repurchase of approximately $3 billion worth of shares in fiscal 2019.
Key metrics: The stock has a trailing p/e ratio of 16.76. The trailing 12-month earnings per share is $5.05. The 12-month trading range is $59.07-$85.31.
Recommendation: I rate the stock as a buy. Ask your financial advisor if it is right for you.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.