Walgreens Boots: A Favorite Among Pharmacies

10/08/2018 5:00 am EST

Focus: HEALTHCARE

Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

Which of these companies is the largest in terms of retail sales: Amazon (AMZN), Home Depot (HD), Target (TGT) or Walgreens Boots Alliance (WAG)? asks Gordon Pape, editor of Internet Wealth Builder.

Most people would probably pick Amazon. If you did, you're wrong. The largest is Walgreens Boots, which is the dominant player in the retail pharmaceutical sector in the U.S. and Europe.

In the U.S., Walgreens has over 8,000 outlets. Walgreens Boots expanded its U.S. footprint earlier this year by buying 1,932 stores from competitor Rite Aid for $4.4 billion. In the U.K., Boots has a similar dominance, with about 2,500 pharmacies.

Walgreen Boots 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 June, the company became part of the Dow Jones Industrial Average, replacing General Electric (GE). Third-quarter 2018 results (to May 31) showed sales of $34.3 billion, up 14% from $30.1 billion in the same period the year before. For the first nine months of the fiscal year, sales were just over $98 billion compared to $88.1 billion last year.

Third-quarter net earnings were over $1.3 billion ($1.35 per share, fully diluted). That was up from $1.2 billion ($1.07 per share) in 2017. Part of the profit gain resulted from U.S. tax reform, which lowered the company's effective rate to 7.6% from 12.4% in 2017.

On a per share basis, the increase was 26%, due in part to a reduction in the number of shares outstanding as a result of the company's stock buy-back plan. For the first nine months of the fiscal year, the company reported earnings of $3.5 billion ($3.51 per share) compared to $3.3 billion ($3.02 per share) last year.

In late June, the company announced it has committed another $10 billion to its share buyback program. The directors also approved a 10% increase in the quarterly dividend, to $0.44 per share ($1.76 per year). At the current price, the stock yields 1.4%. Action now: Buy.

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