1. Presented on November 12th, 2015
(NASDAQ: WBA)
Analysts Team:
Aditi Das
Xuan (Lucy) Liang
Zhi Cheng (Nicole) Low
Jordan Peasel
Yue (Benjamin) Xu
Presented on November 12th, 2015

2. AGENDA Business Overview Industry Overview Financial Analysis
DCF Valuation
Comparable Valuation
Stock Analysis
Recommendation

3. CURRENT HOLDING Capital Gain: $17,046 Date Action October 6, 1999
Purchased 1000 (Cost Basis: $25,000)
September 20, 2006
Sold
November 22, 2013
Sold
TODAY
Current Position: 300 shares trading at $81.82/share (Cost Basis: $24,546)
Capital Gain: $17,046
Yahoo! Finance Investment Holding

4. BUSINESS SEGMENTATION
Continues the Legacy of Walgreens
Operation of Retail Drugstores
Convenient Care Clinics
Specialty Pharmacy Services
Retail Pharmacy USA
Continues the legacy of Alliance Boots
Beauty Retail Operations Comprised of Retail Drugstores
Optician Stores
Contract Manufacturing Operations
Retail Pharmacy International
Continues the Legacy of Alliance Boots
Pharmaceutical Wholesaling and Distribution Business
Pharmaceutical Wholesale
2015 WBA 10-K Pages 2-3

5. Seek and Seize further synergy opportunities
FUTURE GOALS
Seek and Seize further synergy opportunities
Boost Organic Growth
Seek to generate and seize relevant M&A and strategic investment opportunities
WBA April Annual Report,

6. FOOD AND DRUGS STORE Industry Statistics Revenue 263 Billion Profit
Past Growth
1.3%
Expected Growth
2.9%

7. MACROECONOMIC FACTORS
Adults Aged 65 and Older
Federal Healthcare Spending
Unemployment Rate
Disposable Income
IBIS WORLD

8. ACQUISITION OF RITE AID
Rite Aid Overview
Perfect Pharmacy Comparable to WBA
Distributor-McKesson
62.2% of COGS
Heavy store concentration in the New England Area
~4600 Stores
Transaction Overview
WBA is offering $9 per share cash
Closing of 1,000 stores if approved by regulators
Over $1BN of expected synergies:
Cost Savings
Operational Synergies
Expected to be realize within 3-4 years of store closures
~8200 Stores
WBA 2015 Investor Roadshow

9. SWOT ANALYSIS Weakness Strength Opportunity Threats
Mail order
CVS looking to expand its footprint
Lower reimbursement rate
Federal Trade Commission regulation
Synergies of strategic acquisition
Patent cliff
Increasing aging population
Health care reform
High reliance on the third party player
Simple business model
2rd marketplace
Footprint
Strong CRM initiative
Bargain power
Strength
Weakness
Threats
Opportunity
2015 WBA 10-K Part A

10. KEY RISKS Product Third Party Strategy Financial
A shift in pharmacy mix toward lower margin plans and programs
Decrease in the introduction of new brand name and generic prescription drugs
Generic drug inflation
Product
Uncertainty of the realization of anticipated benefits from the acquisitions
Private Brand
Third Party
Strategy
Relationship with pharmacy benefit management companies
Consolidation and strategic alliances in the healthcare industry
Changes in Healthcare Regulatory Environments
Financial
Regulation
Increasing Outstanding Debt
2015 WBA 10-K Pages 7-22

11. FINANCIAL ANALYSIS Profitability improved after the acquisition of AB.
WBA consistently beat earnings estimates by more than 8% in the past four quarters.
Long term debts increased by approximately $11BN. This includes assuming AB’s outstanding debts and notes issuance to finance the Second Step Transactions.
Efficiency of WBA in collecting its credit sales has declined due to shift in management focus.
2015 WBA 10-K Pages 49-53

12. GREENBLATT & DUPONT ANALYSIS
2015 WBA 10-K Pages 49-53

13. REVENUE PROJECTIONS
Patent cliff II is expected to continue through FY15
This will lead to the replacement of branded drugs by generic versions.
Adopted the conservative method
Based on the organic growth rate of WBA
Factor in store closures by reducing the revenue streams by ~5% from FY15-18.
Boots UK Sales Comps grew 3.5% yoy in FY15.
Conservative approach, one year that we expect to see slow growth.
Rev declines by 5% initially due to store closure
This industry is anticipated to grow at an annualized rate of 3.4% from FY15-20.
IBIS WORLD, WBA 4Q & FY2015 Earnings Conference Call

14. WACC (STANDALONE) Yield of US 10-year Treasury Bill Bloomberg
Up to 11/11/2015
pp K
Bloomberg

15. DCF VALUATION (STANDALONE)

16. WACC (WITH RAD) Yield of US 10-year Treasury Bill Bloomberg
Up to 11/11/2015
pp K
Bloomberg

17. DCF VALUATION (WITH RAD)

18. CVS vs WBA CVS Health Corporation Walgreens Boots Alliance Segments
Pharmacy Services (56.6%)
Retail Pharmacy (44.4%)
Corporate – Loss Adjustment
Distributors
Cardinal Health (27.0%)
McKesson (22.87%)
Walgreens Boots Alliance
Segments
Retail Pharmacy USA (76.3%)
Retail Pharmacy Int’l (13.4%)
Pharmaceutical Wholesale (8.4%)
Distributors
AmerisourceBergen (61.07%)
Seat on BoD
Investopedia: What is the Pharmacy Benefit Management Industry, CVS k, WBA k

19. COMPARABLES ANALYSIS Rite Aid has negative equity
CVS has higher tax burden
CVS – highest ROE in 5 years
CVS is generating more cash flow from assets
RAD & WBA – similar cash flow
CVS 10K, RAD 10K and Bloomberg

20. COMPARABLES ANALYSIS
CVS 10K, RAD 10K and Bloomberg

21. WBA Stock Performance to Date
STOCK ANALYSIS
WBA Stock Performance to Date
Yahoo! Finance Interactive Graph

22. WBA vs. CVS Comparable Performance to Date
STOCK ANALYSIS
WBA vs. CVS Comparable Performance to Date
Capitalization of Rite Aid: 8.14 B (.1)
Capitalization of Walgreens: 89.08B (.9)
Price increased on the day of announcement: 6.6%
Price increased from Oct 26th 2015 till Nov 11th 2015: -8.2%
Yahoo! Finance Interactive Graph

23. RECOMMENDATION BUY 100 shares at market price Without Rite Aid
Current Holding: 300 Shares trading at $81.82 (20% of portfolio); Dividend Yield of 17%; Last Paid Dividend of $0.36 on Aug 17th, 2015
Comparable Value of: $85.40
DCF Value of: 86.70
Final WBA Value of: $86.31
Comparable Value of: $87.12
DCF Value of: 96.71
Final WBA Value of: 93.83
Without Rite Aid
With Rite Aid
BUY 100 shares at market price