So far through the Earnings Season in January 2019, half of the companies within the Dow Jones Industrial Average have published their full-year earnings. If we look at the companies on a free cash flow basis, WBA stock price is the cheapest with a P/FCF ratio of only 8.76.
WBA stock related news
There is inherent risk to the company’s overseas business Boots in Europe which is on the verge of a recession. Furthermore the U.K. could still be potentially leaving the EU if a deal can be agreed upon.
The consequences of this could be two-fold:
- The likely possibility of revenue decline in Europe, including the U.K.
- The potential for currency fluctuations in GBP/USD, a weaker GBP to remain competitive and attract foreign investment after Brexit would impact WBA’s financials when converting back to USD.
Another risk developing is Haven, the joint healthcare venture between Amazon (AMZN), J.P. Morgan (JPM) and Berkshire Hathaway (BRK.B). One of the goals of the company is to “access affordable treatments and prescription drugs”, which puts it in direct competition with WBA and also CVS Health (CVS).
WBA Q1 earnings and Q2 date
Sales increased 9.9% to $33.8 billion and operating income increased by 6.1% to $1.4 billion. Earnings per share saw a huge 45.7% increase to $1.18 compared to last year.
They have also implemented a cost management program which should amount to $1 billion annually after 3 years.
For the 2019 fiscal outlook, the company has maintained its guidance of 7-12% growth in adjusted EPS at constant currency rates.
Considering its adjusted guidance and not GAAP, and if we include the risks I’ve outlined above. It will be interesting when full-year earnings are released in September.
As for Q2 earnings, WBA announced the date will be April 2nd.
WBA financials and conclusion
|Total Revenue (M)||$76,392||$103,444||$117,351||$118,214||$131,537|
|Free Cash Flow Per Share||$2.89||$4.19||$5.98||$5.47||$6.93|
|Dividend Per Share||$1.28||$1.36||$1.44||$1.52||$1.60|
|Free Cash Flow Payout Ratio||44.29%||32.46%||24.08%||27.79%||23.09%|
The growth seen above is the combination of organic sales and the acquisition of 1900 Rite Aid stores.
Based on the WBA stock price of $60.68 and a dividend of $1.76, the dividend yield is 2.90%. This may be considered low but the dividend was increased by 10% last year. Even if WBA misses guidance for 2019, the low payout ratio ensures that dividend safety is guaranteed.
The risk/reward on the WBA stock is very compelling and maybe one you should consider adding to your portfolio.
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