Top Trade Alert – June 27 2023 – Walgreens (WBA)

    WBA June 27 2023

    SNX and WBA are both down 10% and even poor SCHN is down – and they did a nice job!  WBA is a stock we have played in the past but it’s not in our current portfolios. Back at $28.50 this morning is getting interesting again so let’s see what’s going on:

    Walgreens Boots Alliance (WBA) is valued at $25Bn at $29/share and last year they made $4.3Bn and this year and next they were supposed to make around $4Bn and that makes sense as Covid is winding down and they got some of that $11Tn in stimulus giving everyone shots and such for the last two years. That’s over – deal with it!  

    Nonetheless, top-line sales were $35.4Bn, which was up 9% from last year with more people out shopping with their newer HealthCare segment up 22% but margins dropped to 19% from 20.3% last year as WBA did only 800,000 Covid shots vs 4.7M a year ago.  

    Despite sales growth, “significantly lower demand for COVID-related services, a more cautious and value-driven consumer, and a recently weaker respiratory season created margin pressures in the quarter,” Chief Executive Rosalind Brewer said.

    On the whole, WBA adjusted 2023 earnings expectations to $4-4.05 from $4.45-4.65 so a good 10% drop in expectations but $4 is still a 7.25 p/e – it’s insane to see people bailing out on this like they are going under. Yes, the Government is cracking down on Pharma pricing but WBA gets the same co-pays either way.

    Here’s a few highlights from their Earnings Call Presentation: 





    Now, when you are reading these slides, you have to keep things in perspective.  WBA has $140Bn in sales and drops 2.85% to the bottom line so when you hear that Village MD will grow from $150M to $200M in the next two years – you should yawn. On the other hand, $800M in cost savings should be very doable as it’s only 0.5% of sales so you can imagine that can be done without burning down stores but $800M would add 20% to profits – that’s a realistic goal!




    3Q 2023 financial highlights

    Like many companies with substantial overseas revenues, they were hurt by the strong Dollar but that’s kind of a great excuse and Boots is actually showing very nice growth in the UK.  

    3Q23            Reported Fx         Constant Fx

    They took an impairment charge and, for some reason, pharmacies are being held responsible for dispensing opiods that were prescribed by doctors.  These are one-time items and certainly don’t mean their business is bad (though they will sell a lot less opiods going forward).  

    FY23 segment assumptions

    Long-term tailwinds outweigh near-term headwinds

    That’s a good slide!  This is why it’s great to dig into these early reporting companies – they can give you great insight into their sector and the macros.  


    Sounds like it’s worth more than $28.50 to me!  They do pay a fat $1.92 dividend so it is tempting to buy the stock but then we could also PROMISE to buy the stock by selling short puts.  The 2025 $27.50 puts should be $5+ this morning and that nets us in for $22.50 at worse and $5 is far more money than we’d be paid in dividends for the next 18 months so why bother owning the stock?  

        • In our Short-Term Portfolio (STP), we like to make short put bets to offset our hedges so let’s sell 10 WBA 2025 $30 puts for $5 ($5,000) and, if it fails, we can always move the stock to the Long-Term Portfolio (LTP) and turn it into a play.  

    In the Income Portfolio, let’s add the following:  

      • Sell 15 WBA 2025 $27.50 puts for $3.65 ($5,475) 
      • Buy 20 WBA 2025 $27.50 calls for $4.20 ($8,400) 


    That’s net $2,925 on the uncovered calls which were $7 ($14,000) last week so massive upside potential (we intend to cover on the bounce) and the worst-case is we own 1,500 shares at net $29.45 – a bit over the current price.  Then we can sell calls to reduce that basis. 

    Frankly, that’s so good I’d like to put it in all of our Portfolios but, for the sake of diversity, we’ll just play it like this for now.