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 the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Walgreens Boots Alliance Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 9.62%
01 FCFF0 4,480
1 FCFF1 4,750 = 4,480 × (1 + 6.03%) 4,333
2 FCFF2 4,975 = 4,750 × (1 + 4.72%) 4,140
3 FCFF3 5,145 = 4,975 × (1 + 3.42%) 3,906
4 FCFF4 5,253 = 5,145 × (1 + 2.11%) 3,638
5 FCFF5 5,296 = 5,253 × (1 + 0.80%) 3,345
5 Terminal value (TV5) 60,538 = 5,296 × (1 + 0.80%) ÷ (9.62% – 0.80%) 38,245
Intrinsic value of Walgreens Boots Alliance Inc. capital 57,608
Less: Borrowings (fair value) 17,413
Intrinsic value of Walgreens Boots Alliance Inc. common stock 40,195
 
Intrinsic value of Walgreens Boots Alliance Inc. common stock (per share) $46.39
Current share price $39.01

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

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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.

Weighted Average Cost of Capital (WACC)

Walgreens Boots Alliance Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 33,803 0.66 13.08%
Borrowings (fair value) 17,413 0.34 2.90% = 3.49% × (1 – 16.94%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 866,534,089 × $39.01
= $33,803,494,811.89

   Borrowings (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (13.00% + 16.70% + 15.70% + 19.40% + 19.90% + 42.90%) ÷ 6
= 16.94%

WACC = 9.62%

FCFF Growth Rate (g)

FCFF 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)
Interest expense, net 704 616 693 596 605 156
Net earnings attributable to Walgreens Boots Alliance, Inc. 3,982 5,024 4,078 4,173 4,220 1,932
 
Effective income tax rate (EITR)1 13.00% 16.70% 15.70% 19.40% 19.90% 42.90%
 
Interest expense, net, after tax2 612 513 584 480 485 89
Add: Dividends declared and distributions 1,629 1,610 1,625 1,578 1,458 1,226
Interest expense (after tax) and dividends 2,241 2,123 2,209 2,058 1,943 1,315
 
EBIT(1 – EITR)3 4,594 5,537 4,662 4,653 4,705 2,021
 
Short-term debt 5,738 1,966 251 323 1,068 774
Long-term debt 11,098 12,431 12,684 18,705 13,315 3,736
Total Walgreens Boots Alliance, Inc. shareholders’ equity 23,512 26,007 27,466 29,880 30,861 20,457
Total capital 40,348 40,404 40,401 48,908 45,244 24,967
Financial Ratios
Retention rate (RR)4 0.51 0.62 0.53 0.56 0.59 0.35
Return on invested capital (ROIC)5 11.39% 13.70% 11.54% 9.51% 10.40% 8.09%
Averages
RR 0.56
ROIC 10.77%
 
FCFF growth rate (g)6 6.03%

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).

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2019 Calculations

2 Interest expense, net, after tax = Interest expense, net × (1 – EITR)
= 704 × (1 – 13.00%)
= 612

3 EBIT(1 – EITR) = Net earnings attributable to Walgreens Boots Alliance, Inc. + Interest expense, net, after tax
= 3,982 + 612
= 4,594

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,594 – 2,241] ÷ 4,594
= 0.51

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,594 ÷ 40,348
= 11.39%

6 g = RR × ROIC
= 0.56 × 10.77%
= 6.03%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (51,216 × 9.62% – 4,480) ÷ (51,216 + 4,480)
= 0.80%

where:

Total capital, fair value0 = current fair value of Walgreens Boots Alliance Inc. debt and equity (US$ in millions)
FCFF0 = the last year Walgreens Boots Alliance Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Walgreens Boots Alliance Inc. capital

FCFF growth rate (g) forecast

Walgreens Boots Alliance Inc., H-model

Microsoft Excel
Year Value gt
1 g1 6.03%
2 g2 4.72%
3 g3 3.42%
4 g4 2.11%
5 and thereafter g5 0.80%

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)
= 6.03% + (0.80% – 6.03%) × (2 – 1) ÷ (5 – 1)
= 4.72%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 6.03% + (0.80% – 6.03%) × (3 – 1) ÷ (5 – 1)
= 3.42%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 6.03% + (0.80% – 6.03%) × (4 – 1) ÷ (5 – 1)
= 2.11%