1. Analysts: Minhao Gu, Tian Luo, Tim Widick
Source:

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

3. 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 RCMP Thumbnail Sketch

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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

16. Valuation DCF method Calculate WACC
Source: stock price accessed from Bloomberg; 10-year-treasury available on Fed Reserve Economic Data:

17. 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%

18. 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

19. 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

20. 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