Analysts: Minhao Gu, Tian Luo, Tim Widick Source: http://www.businesswire.com/news/home/20170131006372/en/Walgreens-Boots-Alliance-WPP-Announce-Global-Marketing

Agenda Relevant Stock Market Prospects Macroeconomic Review Review of the Company and its Business Financial Analysis Financial Projections Application of Valuation Methodologies Recommendation

History of WBA in Our Portfolio Bought on Oct. 4, 1999 The longest held stock in the portfolio Makes up 19.1% of the money invested in equities Responsible for 26.5% of the portfolio’s market value in equity WBA has the largest amount of market value compared to any other equity in the portfolio, making it a key driver of the portfolio’s overall return. Source: Spring 2017 - RCMP Thumbnail Sketch

Stock Market Prospects Previous analysts have sold shares and bought Shares on 3 occasions Bought 1000 shares @ $25 on Oct 4, 1999 Sold 500 shares @ $49.94 in Sept 2006 Sold 200 shares @ $60.35 on Nov 22, 2013 Bought 100 shares @ $79.42 on Nov 13, 2015 118% Gain on current shares 100% and 141% Gains on previously sold shares Source: Spring 2017 - RCMP Thumbnail Sketch Bought 1000 @ $25, Oct. 1999 Sold 500 @ $49.94, Sept. 2006 Sold 200 @ $60.35, Nov. 2013 Bought 100 @ $79.42, Nov. 2015 Source: Bloomberg, WBA US Equity, Line Graph

Macroeconomic Review Aging Population (65 yrs and older) Has a relatively consistent growth rate of 3% This means that their primary market has a growing customer base Source: IBIS World http://clients1.ibisworld.com.proxy2.library.illinois.edu/reports/us/bed/default.aspx?bedid=22

Macroeconomic Review Per Capita Disposable Income This represents the amount of money the population’s ability to purchase goods Compound growth rate of 1.6% in the trailing 5 years Projected compound growth rate of 2.9% for the next 5 years Federal Funding for Medicare and Medicaid Medicare and Medicaid assist elderly and low-income individuals with health coverage Historical and projected growth rates of over 6% each This should lead to increased pharmacy sales throughout the industry Source: IBIS World http://clients1.ibisworld.com.proxy2.library.illinois.edu/reports/us/bed/default.aspx?bedid=33 http://clients1.ibisworld.com.proxy2.library.illinois.edu/reports/us/bed/default.aspx?bedid=142

Walgreens: Key Business Information American Pharmacy Industry Basics Pharmaceutical companies produce drugs for pharmacies to sell Pharmacies come in 3 primary forms Retail Pharmacies and Drug Stores (e.g. Walgreens, CVS, Rite Aid) Mail-order Phamacies (e.g. Express Scripts) Supercenters (e.g. Walmart, Target) Consumers go to pharmacies to buy their prescription drugs Prescription drug prices are typically very high, but the average consumer is able to pay a significantly lower price if they have insurance Individuals without insurance typically avoid purchasing these high priced drugs if possible, so pharmacies see far less purchases from this segment of people

Porter’s Five Forces Supplier Bargaining Power Threat of Substitutes Industry Rivalry High -Multiple Competitors -Undifferentiated Products Supplier Bargaining Power Moderate -Long-term relationship with suppliers -Suppliers have other options to sell to as well Buyer Bargaining Power -Buyers have multiple options -Buyers typically need the product Threat of New Entrants -There is room for new businesses -A relatively low amount of capital is required to enter Threat of Substitutes -Multiple options are available to customers: other drug stores, supercenters, and mail-order Supplier Bargaining Power Threat of Substitutes Industry Rivalry Buyer Bargaining Power Threat of New Entrants Moderate Moderate High Moderate High

SWOT Analysis Strengths Brand Recognition Infrastructure Non-Pharmaceutical Sales in Stores Weaknesses Significant number of store leases being held No control over government regulations regarding health care Opportunities Projected Growing Customer Base Acquisitions (Alliance Boots, Rite Aid) Untapped International Potential Threats Increasingly saturated industry Heavy regulation Industry Slumps

Walgreens: Key Business Information Business Segments US Retail: ~70% of Income 66% of sales are pharmaceutical purchases 33% of sales are from other, general goods Pharmacy Wholesale: ~20% of Income International Retail: ~10% of Income Acquisitions Recent acquisitions of Alliance Boots and AmerisourceBergen Pending transaction with Rite Aid at $6.5 per share

Valuation DCF method Calculate WACC Source: stock price accessed from Bloomberg; 10-year-treasury available on Fed Reserve Economic Data: https://fred.stlouisfed.org/series/DGS10

Valuation DCF method Calculate WACC Discount FCF using proper discount rate The current price has already reflected the growth through acquisition Current price ($85.88) is overpriced by 9%

Valuation Relative Valuation CVS: Largest pharmacy with retail stores and mail services Express Scripts: Full mailing service The Jean Couto Group: Canadian pharmacy retailing Diplomat Pharmacy: Largest independent specialty pharmacy

Valuation Relative Valuation Apply mean multiples to WBA statistics Weighted average implied price of $71.98 per share WBA is currently overpriced in this perspective

Recommendation Bull side Growing market with steady long term increasing demand One of the largest player in a US pharmacy industry and expanding worldwidely Partnership potentially lead to higher bargain power and efficiency Stable dividend yields in history 1.5% Bear side Missed Q1 sales expectation Highly competitive market and low consumer stickiness High transaction fees involved in acquisition and lawsuits High contractual burden in large debt issuance and operating leasing Hold current position