Walgreens Boots Alliance Inc. (NASDAQ:WBA)

Between fiscal years 2014 and 2019, the financial trajectory is characterized by a sharp increase in earnings capacity followed by a period of fluctuation, a peak in 2018, and a subsequent decline in 2019.

EBITDA Performance

Earnings before interest, tax, depreciation and amortization grew substantially from US$ 5,029 million in 2014 to US$ 7,682 million in 2015. Following this initial surge, a slight downward trend occurred through 2017, with values reaching US$ 7,208 million. A peak was achieved in 2018 at US$ 8,415 million before contracting to US$ 7,292 million in 2019.

Operating and Taxable Income Trends

The trajectories for Earnings before interest and tax (EBIT) and Earnings before tax (EBT) closely mirror the movements of EBITDA. EBIT rose from US$ 3,713 million in 2014 to a peak of US$ 6,645 million in 2018. EBT followed a nearly identical pattern, peaking at US$ 6,029 million in 2018, indicating a consistent relationship between operating profit and taxable income across the period.

Net Earnings Volatility

Net earnings attributable to the company demonstrated significant growth between 2014 and 2015, increasing from US$ 1,932 million to US$ 4,220 million. While a peak was reached in 2018 at US$ 5,024 million, the 2019 figure of US$ 3,982 million represents a notable contraction, falling below the levels maintained between 2015 and 2017.

Depreciation and Amortization Insights

The variance between EBITDA and EBIT, which represents depreciation and amortization, remained relatively stable between 2015 and 2018. However, in 2019, this gap expanded to US$ 2,038 million, the highest amount in the analyzed period. This suggests an increase in non-cash charges during a year when overall EBITDA and net earnings were declining.

The analysis of the Enterprise Value to EBITDA ratio reveals a period of initial valuation expansion followed by a consistent multi-year contraction. While operational earnings remained relatively stable after an initial surge, the market valuation of the entity experienced a significant decline, leading to a compression of the valuation multiple.

Enterprise Value (EV) Trends

A substantial increase in Enterprise Value is observed between 2014 and 2015, where the value rose from 59,181 million US$ to a peak of 104,315 million US$. Following this peak, a general downward trend occurred, with the value receding to 66,257 million US$ by 2019. This represents a significant reduction in total enterprise value from its 2015 high.

EBITDA Performance

Earnings before interest, tax, depreciation, and amortization showed strong growth from 2014 (5,029 million US$) to 2015 (7,682 million US$). Between 2015 and 2019, EBITDA remained relatively resilient, fluctuating between 7,208 million US$ and a peak of 8,415 million US$ in 2018, before settling at 7,292 million US$ in 2019.

EV/EBITDA Ratio Analysis

The EV/EBITDA ratio peaked at 13.58 in 2015, coinciding with the peak in Enterprise Value. From 2016 onward, a consistent year-over-year decline in the ratio is observed, falling to 12.98, 11.16, 9.70, and finally 9.09 in 2019. This steady compression indicates that the market attributed a lower multiple to the company's earnings over time, despite the fact that EBITDA levels in 2019 remained significantly higher than those recorded in 2014.

In summary, the divergence between the relatively stable EBITDA and the declining Enterprise Value resulted in a sustained reduction of the EV/EBITDA multiple. This pattern suggests a contraction in valuation that outweighed the operational earnings performance during the latter half of the period analyzed.