Walgreens Boots Alliance Inc (WBA): 40 Consecutive Years of Dividend Growth & Counting

Walgreens Boots Alliance’s Future Growth Potential

As to potential growth catalysts you have an increasing and aging population that’s apt to demand more of the company’s products.

Naturally Walgreens Boots Alliance Inc (NASDAQ:WBA) does not have to succeed, but the company is well positioned and has demonstrated its inclination to grow through in the space through past acquisitions along with its current pursuit of Rite Aid (RAD).

Walgreens anticipates rather robust growth moving forward. Namely adjusted earnings-per-share for this year approaching $4.50 to go along with double-digit longer-term growth:

Source: Walgreens Boots Alliance, Investor Roadshow

Incidentally the company recently increased its guidance for this year to $4.35 to $4.55 for fiscal year 2016. Analysts are presently anticipating 13% to 14% growth for Walgreens over the intermediate-term. So those numbers should give you a ballpark idea of what is anticipated. It doesn’t mean that this has to occur, but it does highlight the potential.

Let’s work with a hypothetical scenario to get a feel for the current value proposition being offered:

The middle column displays the same historical information as highlighted above. The right-hand column provides a set of hypotheticals for the next decade.

On the top line I presumed 9% annualized growth – roughly in line with what the company previously achieved. Naturally this number could be much lower – 9% annual growth is a rather robust assumption for a very large business – but it follows that there are numerous potential catalysts as well.

With a steady profit margin and small decrease in the number of common shares outstanding, you might anticipate that Walgreens could grow earnings-per-share by around 9% annually as well.

Keep in mind that:

1. The company’s management expects low double-digit growth.

2. Analysts are looking for 13% to 14% growth.

So while 9% growth may be quite a bit faster than your typical company, it might not be an outlandish anticipation.

Walgreens historical earnings multiple over the past decade has average about 18. Using this number for a future estimate results in the expectations of 7% annual share price appreciation.

This is where it’s important to remember that the above table is merely a baseline – one possibility out of many that acts as a guide but certainly not an absolute. Should shares continue trading with a P/E ratio in the 20’s, the share price appreciation could be much higher. Alternatively, should shares trade with an earnings multiple closer to say 15, you’d assume slower share price growth. It’s all about your expectations.