I'll admit I love what Walgreens (WBA) is doing adding in a Walgreens Advertising Group. And even with the stock around $43, up strong today, I still like it. WBA now falls into one of those old-school names like Ford (F) and General Motors (GM) that are actually evolving with the times rather than dying with the dinosaurs. I like that these companies are reinventing themselves while letting their legacy businesses continue to provide some stability as a core.
First-party data is what the market values currently. Loyalty and rewards programs can provide just that. Walgreens is looking to leverage its 100+ million loyalty members while using real-time transactions to optimize digital advertising. We've seen names on both the supply and demand side platforms soar over the past several years. The Trade Desk (TTD) is the name everyone knows. There are others to consider in the space but with TTD's success we've seen some companies wall their advertising. Facebook FB comes to top of mind.
It's unclear if Walgreens will ultimately be a walled variety platform. From the initial press release, it doesn't appear that way. In fact, it appears as if Walgreens may be playing middleman. That's not a terrible thing but it will dampen the huge upside. In reality, we've already seen Target (TGT) do this with their RED cart and their app. I think it is an underappreciated facet of their business as well.
This comes on the cuff of a strong Q4 reported back in October where the company earned $1.02 per share on revenue of $34.7 billion. While 2021 guidance only shows low single-digit growth, this digital platform push could help the back half of 2021 begin to show better growth. The company has the cash flow and profitability to undertake a more aggressive rollout should the platform perform well early.
This means that pullbacks in the first half of 2021 should be considered buying opportunities. All the while, an investor can collect a dividend north of 4%. The call premiums are fairly attractive on the stock as well, so a buy-sell (covered call) setup could provide some attractive income potential. For instance, buying the stock around $43 and selling the April 16, 2021 $50 call around $1.50 adds 3.5% to the income potential. If the stock gets call away after only the February dividend of $0.47, a trader would still take home 4.6% in income/yield PLUS 16% in capital appreciation.
Thus far, 2021 is shaping up to be a blend of old school and new blood.