Stock Analysis on Net
Stock Analysis on Net

Walgreens Boots Alliance Inc. (NASDAQ:WBA)

This company has been moved to the archive! The financial data has not been updated since July 9, 2020.

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Walgreens Boots Alliance Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 12.84%
01 FCFE0 6,400
1 FCFE1 6,996 = 6,400 × (1 + 9.31%) 6,200
2 FCFE2 7,395 = 6,996 × (1 + 5.70%) 5,807
3 FCFE3 7,550 = 7,395 × (1 + 2.09%) 5,254
4 FCFE4 7,435 = 7,550 × (1 + -1.51%) 4,586
5 FCFE5 7,055 = 7,435 × (1 + -5.12%) 3,856
5 Terminal value (TV5) 37,261 = 7,055 × (1 + -5.12%) ÷ (12.84% – -5.12%) 20,365
Intrinsic value of Walgreens Boots Alliance Inc. common stock 46,067
 
Intrinsic value of Walgreens Boots Alliance Inc. common stock (per share) $53.16
Current share price $39.01

Based on: 10-K (reporting date: 2019-08-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.86%
Expected rate of return on market portfolio2 E(RM) 13.54%
Systematic risk of Walgreens Boots Alliance Inc. common stock βWBA 0.92
 
Required rate of return on Walgreens Boots Alliance Inc. common stock3 rWBA 12.84%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rWBA = RF + βWBA [E(RM) – RF]
= 4.86% + 0.92 [13.54% – 4.86%]
= 12.84%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Walgreens Boots Alliance Inc., PRAT model

Microsoft Excel
Average Aug 31, 2019 Aug 31, 2018 Aug 31, 2017 Aug 31, 2016 Aug 31, 2015 Aug 31, 2014
Selected Financial Data (US$ in millions)
Dividends declared and distributions 1,629 1,610 1,625 1,578 1,458 1,226
Net earnings attributable to Walgreens Boots Alliance, Inc. 3,982 5,024 4,078 4,173 4,220 1,932
Sales 136,866 131,537 118,214 117,351 103,444 76,392
Total assets 67,598 68,124 66,009 72,688 68,782 37,182
Total Walgreens Boots Alliance, Inc. shareholders’ equity 23,512 26,007 27,466 29,880 30,861 20,457
Financial Ratios
Retention rate1 0.59 0.68 0.60 0.62 0.65 0.37
Profit margin2 2.91% 3.82% 3.45% 3.56% 4.08% 2.53%
Asset turnover3 2.02 1.93 1.79 1.61 1.50 2.05
Financial leverage4 2.88 2.62 2.40 2.43 2.23 1.82
Averages
Retention rate 0.63
Profit margin 3.39%
Asset turnover 1.82
Financial leverage 2.40
 
FCFE growth rate (g)5 9.31%

Based on: 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31).

2019 Calculations

1 Retention rate = (Net earnings attributable to Walgreens Boots Alliance, Inc. – Dividends declared and distributions) ÷ Net earnings attributable to Walgreens Boots Alliance, Inc.
= (3,982 – 1,629) ÷ 3,982
= 0.59

2 Profit margin = 100 × Net earnings attributable to Walgreens Boots Alliance, Inc. ÷ Sales
= 100 × 3,982 ÷ 136,866
= 2.91%

3 Asset turnover = Sales ÷ Total assets
= 136,866 ÷ 67,598
= 2.02

4 Financial leverage = Total assets ÷ Total Walgreens Boots Alliance, Inc. shareholders’ equity
= 67,598 ÷ 23,512
= 2.88

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.63 × 3.39% × 1.82 × 2.40
= 9.31%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (33,803 × 12.84% – 6,400) ÷ (33,803 + 6,400)
= -5.12%

where:
Equity market value0 = current market value of Walgreens Boots Alliance Inc. common stock (US$ in millions)
FCFE0 = the last year Walgreens Boots Alliance Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Walgreens Boots Alliance Inc. common stock

FCFE growth rate (g) forecast

Walgreens Boots Alliance Inc., H-model

Microsoft Excel
Year Value gt
1 g1 9.31%
2 g2 5.70%
3 g3 2.09%
4 g4 -1.51%
5 and thereafter g5 -5.12%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 9.31% + (-5.12% – 9.31%) × (2 – 1) ÷ (5 – 1)
= 5.70%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 9.31% + (-5.12% – 9.31%) × (3 – 1) ÷ (5 – 1)
= 2.09%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 9.31% + (-5.12% – 9.31%) × (4 – 1) ÷ (5 – 1)
= -1.51%