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Should Value Investors Pick Walgreens Boots Alliance (WBA) Stock?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Walgreens Boots Alliance, Inc. (WBA - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Walgreens Boots Alliance has a trailing twelve months PE ratio of 13.4, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 21.3. If we focus on the stock’s long-term PE trend, the current level puts Walgreens Boots Alliance’s current PE ratio noticeably below its midpoint (which is 18.5) over the past five years.
Further, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 30.5. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Walgreens Boots Alliance has a forward PE ratio (price relative to this year’s earnings) of just 12.3, so it is fair to say that a slightly more value-oriented path may be ahead for Walgreens Boots Alliance’s stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Walgreens Boots Alliance has a P/S ratio of about 0.6. This is significantly lower than the S&P 500 average, which comes in at 3.5 right now. Also, as we can see in the chart below, this is somewhat below the highs for this stock in particular over the past few years.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Walgreens Boots Alliance currently has a Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes WBA a solid choice for value investors.
What About the Stock Overall?
Though Walgreens Boots Alliance might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of B and a Momentum score of C. This gives WBA a VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen six estimates go higher in the past sixty days and one lower, while the full year estimate has seen eleven upward and no downward revisions in the same time period.
This has had a favorable impact on the consensus estimate, as the current quarter consensus estimate has risen about 2.7% in the past two months, while the full year estimate has increased nearly 3.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Walgreens Boots Alliance, Inc. Price and Consensus
This favorable trend is why the stock has just a Zacks Rank #2 (Buy) and why we are looking for better performance from the company in the near term.
Bottom Line
Walgreens Boots Alliance is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Its strong Zacks Rank also indicates robust growth potential in the near future. However, the company’s prospects might be constrained due to adverse broader factors, as it has a sluggish industry rank (bottom 50% out of more than 250 industries). In fact, over the past one year, the sector has clearly underperformed the broader market, as you can see below:
Despite positive estimate revision activity, investors should wait for industry trends and broader factors to turn around first. When they do, this stock could be a compelling value pick.
Zacks Top 10 Stocks for 2018
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Should Value Investors Pick Walgreens Boots Alliance (WBA) Stock?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Walgreens Boots Alliance, Inc. (WBA - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Walgreens Boots Alliance has a trailing twelve months PE ratio of 13.4, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 21.3. If we focus on the stock’s long-term PE trend, the current level puts Walgreens Boots Alliance’s current PE ratio noticeably below its midpoint (which is 18.5) over the past five years.
Further, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 30.5. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Walgreens Boots Alliance has a forward PE ratio (price relative to this year’s earnings) of just 12.3, so it is fair to say that a slightly more value-oriented path may be ahead for Walgreens Boots Alliance’s stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Walgreens Boots Alliance has a P/S ratio of about 0.6. This is significantly lower than the S&P 500 average, which comes in at 3.5 right now. Also, as we can see in the chart below, this is somewhat below the highs for this stock in particular over the past few years.
If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Walgreens Boots Alliance currently has a Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes WBA a solid choice for value investors.
What About the Stock Overall?
Though Walgreens Boots Alliance might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of B and a Momentum score of C. This gives WBA a VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen six estimates go higher in the past sixty days and one lower, while the full year estimate has seen eleven upward and no downward revisions in the same time period.
This has had a favorable impact on the consensus estimate, as the current quarter consensus estimate has risen about 2.7% in the past two months, while the full year estimate has increased nearly 3.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Walgreens Boots Alliance, Inc. Price and Consensus
Walgreens Boots Alliance, Inc. Price and Consensus | Walgreens Boots Alliance, Inc. Quote
This favorable trend is why the stock has just a Zacks Rank #2 (Buy) and why we are looking for better performance from the company in the near term.
Bottom Line
Walgreens Boots Alliance is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Its strong Zacks Rank also indicates robust growth potential in the near future. However, the company’s prospects might be constrained due to adverse broader factors, as it has a sluggish industry rank (bottom 50% out of more than 250 industries). In fact, over the past one year, the sector has clearly underperformed the broader market, as you can see below:
Despite positive estimate revision activity, investors should wait for industry trends and broader factors to turn around first. When they do, this stock could be a compelling value pick.
Zacks Top 10 Stocks for 2018
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2018 today >>