After nearly three months of 2019, I made my first purchase of the year:
I’ve been studying WBA for about a year now. In June 2018, the stock was trading in the mid to high $60s.
WBA is attractive because it is a profitable, growing, non-cyclical, owner-operated, financially prudent company.
By Dec 2018, the stock had rallied to the mid $80s, and I lost interest. Then a series of bad surprises (probably temporary) punished the stock to its current price ~$55.
I made it a 3% position, with the willingness to raise it to a 4-5% position.
The stock is cheap, and trades around 9-10x FCF/share. The short term is not expected to be great, but most of the bad news is baked in. The probability of positive surprises seem larger than further negative surprises.
WBA is expected to earn about $6 in the current year. If we slap a 15x multiple, we get a $90 target.
If you assume normalized growth of 5%, and FCF/sales of 4%, then a 12% cost of capital you get a $80 target. Another way of saying this is that the current stock price implies a 15% CAGR, with relatively well-protected downside.