WBA

Walgreens Boots Alliance (WBA) reported fourth quarter revenues rose 13% to $34.3 billion with net earnings from continuing operations increasing 6% to $358 million and EPS up 5% to $.41.

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For the full fiscal 2021 year, revenues rose 9% to $132.5 billion with earnings from continuing operations and EPS up significantly to $2.0 billion and $2.30, respectively. Return on shareholders’ equity for the year was 8.4%. Free cash flow increased 2% during the year to $4.2 billion with the company paying $1.6 billion in dividends. In line with the company’s long-term capital policy to maintain a strong balance sheet and financial flexibility, Walgreens reduced its leverage by paying down about $6.5 billion in debt during the year.

Walgreens Boots Alliance announced its new consumer-centric healthcare strategy. The plan features the launch of Walgreens Health, a new business segment enabled by investments of $5.2 billion in VillageMD and $330 million in CareCentrix, accelerating the company's capabilities in primary care, post-acute care and home care. The company's new Walgreens Health segment will be in investment mode, which should drive significant future revenue and adjusted operating income growth.

For fiscal 2022, the company anticipates flat adjusted EPS as core growth of 4% is expected to be offset by investments in Walgreens Health. Walgreens expects that over the next three years, adjusted core EPS growth will approximate 4%. As Walgreens restructures its operations once again, we have decided to exit our position and watch from the sidelines.

Even with a healthy dividend, the stock has provided us with a disappointing 3% loss over the years.

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J&J

Johnson & Johnson (JNJ) reported third quarter sales increased 11% to $23.3 billion with net earnings up 3% to $3.7 billion and EPS up 3% to $1.37. Adjusted EPS increased 18% to $2.60. This solid performance was driven by robust results across the company’s business units.

Pharmaceuticals led the growth with revenues growing a robust 14% to $13 billion driven by double-digit growth in key products in oncology, immunology, infectious diseases and pulmonary hypertension. Worldwide Medical Devices sales increased 8% to $6.6 billion with growth driven by COVID-19 related market recovery and innovation. Worldwide Consumer Health sales increased 5% during the quarter to $3.7 billion with strong growth driven by over-the-counter products.

Year-to-date, JNJ generated $15 billion in free cash flow and ended the quarter with net debt of $3 billion, including $31 billion in cash and investments and $34 billion in long-term debt. The company invested $3.4 billion in research and development to advance its promising innovative pipeline during the quarter and paid $2.8 billion in dividends.

The company recently established a $2 billion settlement fund regarding talc litigation.

JNJ increased its 2021 full-year guidance with sales expected to increase 13.9% to 14.5% for the year to a range of $94.1 billion to $94.6 billion with adjusted EPS expected to increase a healthy 21.7% to 22.3% to a range of $9.77-$9.82.

Johnson & Johnson announced plans to spin off the company's Consumer Health business with its iconic brands, such as Neutrogena, Tylenol, Listerine and Band-Aid, creating a new publicly traded company in 18-24 months in a tax-free transaction to shareholders. This transaction would create two global leaders that are better positioned to deliver improved health outcomes for patients and consumers through innovation, pursue more targeted business strategies and accelerate growth.

Johnson & Johnson remains committed to maintaining a strong balance sheet and to its stated capital allocation priorities of R&D investment, competitive dividends and value-creating acquisitions. The overall shareholder dividend will remain at least at the same level following the completion of the transaction.

Over the past 21 years, JNJ’s stock has risen a healthy 359% and appears attractively valued whether the firm’s Band-Aid is on or off. Buy.

Coda:

With the proceeds from Walgreens, we plan to buy Visa (V).