The young company Walgreens Boots Alliance Inc (NASDAQ:WBA), which began trading under its new name on December 31, 2014, has been doing pretty well for itself in 2015. After posting strong fiscal second-quarter results today, WBA stock added more than 3%; the WBA stock price is now up 19% year-to-date.
Walgreens Boots Alliance was formed when the company formerly known as Walgreen Company — shares traded under the ticker symbol “WAG” — acquired the European health and beauty retailer Alliance Boots late last year. The result was a globally diversified retailer and pharmacy with nearly 13,000 stores worldwide.
Just days before the final completion of the deal was finalized, I tapped Walgreens stock as one of my Top 5 Stocks to Buy for 2015. Especially after the blowout earnings from WBA stock today, I’m sticking with my pick going forward.
Execution, Expansion and Innovation Drive WBA Stock
The stock market is clearly applauding the quarterly earnings beat today, which was rather impressive indeed. WBA stock earned $1.18 per share, crushing analyst the consensus 95-cent EPS estimate by 24%. Sales rose 35.5%.
WBA also stepped up its plans to cut back on costs, as Walgreens announced the closure of 200 underperforming U.S. stores. The company now hopes to save $1.5 billion by the end of 2017 through its company-wide restructuring program, triple its original $500 million goal.
And even though Walgreens just spent billions on its Alliance Boots acquisition, feasible rumors keep popping up claiming WBA is looking to snap up smaller drugstore Rite Aid Corporation (NYSE:RAD). While some investors worry such an acquisition wouldn’t go through due to antitrust concerns, I doubt that would be a problem. InvestorPlace contributor James Brumley recently broke down the logic:
“While RAD and WBA are prominent names in the business, they’re not especially dominant names. Walgreen controls about 20% of the U.S. market. Inasmuch that Boots is mostly a European pharmacy, regulators shouldn’t be too concerned that the addition of Rite Aid stores would only add about 4,500 stores to the existing 8,300 Walgreen stores in the United States.”
Even then, the combined sales of RAD and WBA (before the acquisition of Europe’s Alliance Boots — an irrelevant part of any U.S. antitrust inquiry) wouldn’t stack up to the dominant American pharmacy, CVS Health Corp (NYSE:CVS). CVS logged nearly $140 billion in revenues in 2014, while the combined sales of RAD and Walgreens clocked in around $103 billion in their most recent fiscal years.
In other words, if WBA buys RAD, the newer, stronger Walgreens will only spark greater competition with CVS — something the U.S. Department of Justice shouldn’t be averse to.
To top it all off, Walgreens is an early partner with the innovative blood-testing company Theranos, which has revolutionized blood testing, making it drastically cheaper, easier, faster, and altogether less of an ordeal. Instead of gritting your teeth and closing your eyes as a vial of blood is extracted from your arm, Theranos merely requires a prick of your finger to get what it needs.
Theranos Wellness Centers are now rolling out in Walgreens across the country.
There’s so much to like about this company. I only wish I had taken my own advice and bought WBA stock to start off 2015. Oh well — it’s still not too late!
As of this writing John Divine held no positions in any of the stocks mentioned, though he may take a position in WBA after revisiting it for this article. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
