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Shares of pharmacy services provider and the newest Dow-30 member Walgreens Boots Alliance (WBA Free Walgreens Boots Stock Report) are down big in early market action following the release of the company's fiscal third-quarter financials. (Fiscal years end August 31st.)

While operating results were healthy, for the most part, we think that investor sentiment was largely impacted by increasing concerns about the competitive landscape. Specifically, retail behemoth Amazon.com (AMZN), which has been working towards launching a coalition with fellow heavy hitters Berkshire Hathaway (BRKB) and JPMorgan Chase & Co. (JPM Free JPMorgan Stock Report) to lower employee healthcare costs, announced that it purchased medication delivery company PillPack. Obviously the news has many on Wall Street worried that the triumvirate's initiative is gaining momentum. Almost all pharmacy services providers, including CVS Health (CVS), are trading lower this morning on fears of an increasingly crowded space and further market-share pressures.

From an operational standpoint, May-quarter financial results were mostly solid. The top line rose an expected 14% year over year, to $34.3 billion, thanks largely to a 19% increase in pharmacy sales. Same-store sales were flat in comparison to the year earlier, but the inclusion of Rite Aid drove the overall uptick. Meanwhile, earnings per share clocked in at a better-than-expected $1.53, marking 15% year-over-year growth. This metric got a boost from aggressive share repurchases and a more favorable tax rate due to the Tax Cuts and Jobs Act.

Meanwhile, management tweaked its full-year fiscal 2018 share-earnings outlook for the better. Indeed, it tacked a nickel onto the bottom end of its range, which now stands at $5.90-$6.05 a share. The midpoint of guidance now calls for a 17% year-over-year advance for all of fiscal 2018 and 10% growth in the fourth quarter. We think that management is being a bit cautious in both regards. Thus, we are calling for share earnings of $1.48 for the August period and $6.10 for the full year.

Part of our optimism stems from management's shareholder-friendly ways. To wit, the company announced that the board of directors has authorized a $10 billion share-repurchase program. Walgreens has long been aggressive on this front and we see no reason to expect anything different going forward, given the company's strong cash flow generation and finances. In related news, the quarterly dividend was upped by 10%, to $0.44 per share.

We think that today's pullback in price presents a good entry point for prospective accounts. We continue to like the story being told here as Walgreens remains a leader in what should be a lucrative space for decades to come. While increased competition and uncertainty regarding the Trump Administration's intentions create some uncertainty, Walgreens should be well positioned, regardless. Its presence overseas, meanwhile, provides some diversification. Plus, we think that management has shown the ability to remain ahead of the curve in terms of M&A activity, something the company's financial wherewithal should allow it to continue to do. On top of the company's worthwhile capital appreciation potential, we think that would-be investors will be drawn to the company's attractive safety profile and its well above-average dividend yield.


About the Company: 
Walgreens Boots Alliance is one of the world’s premiere prescription drug providers, anchored by its network of drug stores in the United States and Europe. Currently, it operates more than 13,200 stores across 11 countries. It most recently acquired 1,932 Rite Aid locations, solidifying its domestic footprint. Pharmacy sales accounted for approximately 70% of the overall top line (as of 8/31/17).

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.