Option Trade
Walgreens Boots Alliance Inc (NASDAQ:WBA) Calls 
Wednesday, June 10, 2015

**OPTION TRADE: Buy the WBA Oct 2015 85.000 call (WBA151016C00085000 at or under $4.15. Place a protective stop loss at $1.65, and a pre-determined sell at $7.50.

by Ian Harvey

June 10, 2015

Introduction

Walgreens Boots Alliance Inc (NASDAQ: WBA), a global pharmacy-led, health and wellbeing enterprise, has just received a boost from Macquarie, which started coverage with an "outperform" rating. Walgreens Boots Alliance Inc was already up over 9% year-to-date before yesterday, hitting an all-time high of $93.42 in early April – and could very well be on the way back to this high.

Technical Details

Walgreens Boots Alliance closed at $84.17 on Tuesday. Walgreens Boots Alliance has a 52-week low of $57.75 and a 52-week high of $93.42. The stock’s 50-day moving average is $85.00 and its 200-day moving average is $80.00.

Earnings

Previous Earnings

Walgreens Boots Alliance last posted its quarterly earnings results on Thursday, April 9th. The pharmacy operator reported $1.18 earnings per share for the quarter, beating the analysts’ consensus estimate of $0.94 by $0.24. The company had revenue of $26.60 billion for the quarter, compared to the consensus estimate of $27.27 billion.

During the same quarter last year, the company posted $0.91 earnings per share. Walgreens Boots Alliance’s revenue was up 35.5% compared to the same quarter last year. Analysts expect that Walgreens Boots Alliance will post $3.63 EPS for the current fiscal year.

Why Walgreen’s?

Many investors may think of Walgreens as just a drugstore chain, but after its acquisition of Boots Alliance last year the company is now a titan of prescription drug buying, one that can easily negotiate lower prices from drugmakers.

It is expected that Walgreens is accelerating its same-store sales and has lots of room to improve its profitability. Also, there is the possibility of another merger -- Walgreens already has a 5% stake in AmerisourceBergen (ABC).

Walgreens Boots Alliance shares have become attractive following their recent decline.

The company has incrementally impressed by delivering better-than-expected F2Q'15 results and communicating a clear, compelling strategy at its 2015 analyst day. The combination of a new, more transparent, management team and WBA's almost 500 basis point margin gap to CVS in U.S. retail is a great structural turnaround story.

Walgreens is reportedly ahead of schedule with the integration of Alliance Boots, which is the European pharmacy retailer it bought for $16 billion a couple years ago.

The time for a transformative deal in the drugstore space has never been better. Drug-related spending will likely continue to grow over the next few years as the population in the U.S. continues to age at a rapid rate. Another big driver: ObamaCare and the expansion of health care coverage.

Another opportunity is for Walgreens to get more focused on the retail side and buy up Rite Aid. Right now, Walgreens and Rite Aid are No. 1 and No. 3, respectively, in terms of U.S. retail pharmacy market share. The two combined would have close to 13,000 stores, versus CVS’s 8,000.

Walgreens Boots Alliance Inc officially launched its app for Apple Watch that assists people take medications as prescribed through the easy-to-use Pill Reminder and Refill Reminder features. Medication non-adherence is an important issue that adds an estimated $300 billion a year to medical costs in the U.S. The Walgreens App for Apple Watch is presently one of only a few apps that address this issue by prompting users to adhere to medication regimens and reminding them when their prescription is due for refill.

Wearable devices can play a key role in assisting people take medication as prescribed. The Walgreens App for Apple Watch is designed to assist patients manages their medications, whether it is a simple, once-daily reminder or multiple complex drug regimens. The Apple Watch app connects with the user’s Pill Reminders inside the Walgreens iPhone app, and Apple’s “actionable alerts” allow the user to mark a medication as taken or skipped, in addition to view which medications might have been missed or may be taken next. Refill Reminders predict when medication may be running low and offer users a one-touch method to initiate a refill. The user will receive a follow-up notification when the medication is ready for pickup.

Walgreens also declared the planned integration of Balance Rewards with Apple Pay, coming this fall to stores with the launch of rewards support for Apple Pay. Starting this fall, Apple Pay will provide immediate access to Balance Rewards without separately scanning a Balance Rewards card. Balance Rewards members will have the ability to earn and redeem Balance Rewards points via Apple Pay, the easy, secure and private way to pay.

Analysts Opinions

Analysts at Macquarie initiated coverage on shares of Walgreens Boots Alliance in a research note on Tuesday. They set an “outperform” rating on the stock.

Also,Walgreens Boots Alliance has earned a “BBB-” credit rating from Morningstar. The research firm’s “BBB-” rating indicates that the company is a moderate default risk. They also gave their stock a two star rating.

The company has also been the subject of a number of other research reports:-

• Analysts at Tigress Financial upgraded shares of Walgreens Boots Alliance from an “underperform” rating to a “neutral” rating in a research note on Friday, May 22nd.

• Analysts at Jefferies Group raised their price target on shares of Walgreens Boots Alliance from $82.00 to $90.00 and gave the company a “hold” rating in a research note on Thursday, April 16th.

• Finally, analysts at Citigroup Inc. raised their price target on shares of Walgreens Boots Alliance from $88.00 to $107.00 and gave the company a “buy” rating in a research note on Monday, April 13th.

Walgreens Boots Alliance, Inc. shares have received a Mean Price Target of $90.68. According to the rating issued from 19 Wall Street Analysts, the High Price Target is seen at $107 while the Lower end of the Price Target is seen at $70. The Median Price Target is calculated at $90.

Conclusion

Walgreens is an interesting story given the expansion to overseas markets with the Alliance Boots acquisition. Alliance Boots is also a health and beauty products company, so look for Walgreens to start using those products in its storefronts to drive higher margin sales of non-drug items.

CVS’s stock has already seen an impressive run over the last year, but Walgreens could just be getting started, and this is where we can benefit from this option trade.

Therefore, based on the facts above the following option trade is recommended…..


**OPTION TRADE: Buy the WBA Oct 2015 85.000 call (WBA151016C00085000 at or under $4.15. Place a protective stop loss at $1.65, and a pre-determined sell at $7.50.



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Options traders win because they are successful.



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