On Tuesday after the close, Wall Street found out that Walgreens (NASDAQ:WBA) would be joining the Dow Jones Industrial Average. It quickly propelled WBA stock higher, up more than 5% on Wednesday as a result.
However, for one company to make it into the index’s collection of 30 stocks, one has to exit. This time? The longest standing member, General Electric (NYSE:GE).
GE’s presence in the Dow, an index that was started more than 120 years ago in 1896 when it had just 12 names in it, had been bumpy in the early years. However, it’s been in the index for more than 100 years, since 1907, and is the longest-tenured name in the Dow.
Exxon Mobil (NYSE:XOM) will now be the longest-running company in the Dow, being there since 1928, once GE is removed on Jun. 26.
It’s just another mark at the company’s recent skid. Shares were trading below its 52-week low of $12.73 in the pre-market, but opened two pennies above that mark before rallying higher.
But enough about GE, as there’s plenty of troubles to talk about there. What about WBA stock at this point? Is it a buy on this move?
Valuing WBA Stock
Walgreens hasn’t been without drama over the last couple years. The headache surrounding its attempted acquisition of Rite Aid (NYSE:RAD) locations has been well documented and showed what a tough road regulators can pave.
Along with its M&A hurdles, WBA stock has faced concern from investors as tech companies — mainly Amazon.com (NASDAQ:AMZN) — threaten to enter the bricks-and-mortar pharmacy/convenience store space.
That said, WBA stock is actually finding some reprieve. Shares are seeing a healthy bounce by the Dow Jones announcement, now north of $68. That gives Walgreens stock a price-to-earnings ratio of just 11.25, assuming it’s able to earn the $5.96 per share that analysts currently expect for this year.
That’s a pretty low valuation for a stock that has solid growth. For instance, that earnings figure is 17% higher than last year’s result, while estimates call for further growth of 9% next year. On the sales front, analysts expect revenue to grow 11.8% this year and 5.7% next year.
Sure, part of that sales bump may include the almost 2,000 Rite Aid stores WBA bought, and the integration costs may not be factored into the non-GAAP earnings results. But by and large — and remember that WBA stock pays a 2.5% dividend yield, too — this is not an expensive name given its brand and business strengths.
Trading WBA Stock
Click to Enlarge
So what do the charts look like? To be frank, WBA stock has not been trading that well over the past 18 months. Shares have been under pressure, as the five-year weekly chart above shows.
Bulls are breathing a sigh of relief to see that the $62.50 level has held as long-term support. Now more than $5 above that mark, it’s got some cushion to work with. In blue, I marked a small trend-line of resistance that was plaguing WBA stock in 2018.
Now though, it’s over that mark. There’s a few minor levels of potential resistance highlighted in thin black lines. More prominent levels of support and resistance are shown with more prominent black lines.
It would be constructive for WBA stock to get above this $68 level and consolidate. This will give it a chance to breakout over long-term resistance, currently near $75. That may take some time, but if WBA is able to do so, it will put its former highs near $92 back on the table.
Should $68 hold up as resistance in the short term, let’s see if WBA can find support near $65. That’s the backside of its prior downtrend resistance line (in blue). Either way, Walgreens is finally looking much healthier this year.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
