Why Walgreens Boots Alliance Is Jumping 5% Today

What happened

It’s official. General Electric (NYSE: GE) is a member of the Dow Jones Industrial Average (DJINDICES: ^DJI) no more. Walgreens Boots Alliance (NASDAQ: WBA) will replace General Electric in the iconic index “prior to the open of trading on Tuesday, June 26,” according to S&P Dow Jones Indices.

Following the decision, Walgreens Boots Alliance shares jumped 5.3% higher on Wednesday.

So what

An original member of the DJIA, General Electric has been a continuous member of the index since 1907. However, General Electric’s influence in the index has been waning alongside the declining influence of industrial goods on our economy.

Image source: Getty Images.

Unlike General Electric, which gets the bulk of its revenue from aviation, power, and energy products businesses, Walgreens Boots Alliance is a retail pharmacy giant. Including its investments, it has over 13,200 stores located in 111 countries and it employs over 385,000 people.

In the U.S., it operates under the Walgreens and Duane Reade banners. It also recently completed the purchase of nearly 2,000 Rite Aid stores. Overseas, its stores operate under the Boots brand. In fiscal 2017, it reported $87.3 billion in sales for its retail pharmacy USA segment and $11.8 billion in sales from its retail pharmacy international segment. It also reported $21.2 billion in sales from its pharmaceutical wholesale segment, which operates primarily under the Alliance Healthcare brand. In total, Walgreens Boots Alliance’s revenue was $118.2 billion last fiscal year.

Walgreens Boots Alliance also owns 56,854,867 shares, or 26%, of AmerisourceBergen, a drug distributor with a $20 billion market capitalization.

Now what

The DJIA is a price-weighted stock index, so Walgreens Boots Alliance will represent a larger proportion of the index than General Electric, which because of its declining share price, only accounts for about 0.36% of the index now.

Because the divisor that’s used to calculate the index will be adjusted, the change won’t “disrupt the level of the index,” so investors shouldn’t expect to see any major fluctuation in the index because of the change.

Ultimately, Walgreens Boots Alliance’s inclusion in the DJIA isn’t likely to move the needle much (beyond bragging rights). Far more money tracks the performance of the S&P 500 index than the DJIA, so investors should continue to evaluate Walgreens Boots Alliance on its opportunity to provide prescription fulfillment and healthcare services to an increasingly larger, and longer-living population, rather than on this change.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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