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Here's Why You Should Retain Walgreens Boots (WBA) For Now
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Walgreens Boots Alliance, Inc. (WBA - Free Report) is gaining from strategic collaborations and noteworthy product launches. The company ended the third quarter of fiscal 2022 with better-than-expected earnings. Robust sales growth in the Boots business instills optimism. However, overall declining revenues and stiff rivalry do not bode well.
In the past year, the Zacks Rank #3 (Hold) stock has declined 20.9% against a 3% growth of the industry and a 12.1% plunge of the S&P 500.
The renowned pharmacy-led health and beauty retail company has a market capitalization of $32.35 billion. Its third-quarter fiscal 2022 earnings surpassed the Zacks Consensus Estimate by 1.1%.
In the past five years, the company registered earnings growth of 3.3%, which compares to the industry’s 8.6% rise and the S&P 500’s 13.4% increase. The company’s long-term projected growth rate of 5.0% remains behind the industry’s growth projection of 6.3% and the S&P 500’s estimated 11.2% increase.
Image Source: Zacks Investment Research
Let’s delve deeper.
Factors At Play
Q3 Upsides: Walgreens Boots exited third-quarter fiscal 2022 with better-than-expected earnings. The company experienced improved online growth momentum, with digital sales up 25% in the U.S. The Boots business continued its rally in the fiscal third quarter, with robust sales growth across the Boots UK and Boots.com. Further, sales contributions from the newly-formed Walgreens Health segment instill investors’ optimism. The rollout of VillageMD continued to progress well in the fiscal third quarter. VillageMD had 315 total clinics open by quarter-end, indicating an increase of 97 clinics from the year-ago period.
Walgreens Boots also played a significant role in COVID-19 vaccinations and testing, administering 4.7 million vaccinations and 3.9 million tests in the reported quarter.
New Alliances Look Strategic: Of late, Walgreens Boots has inked a series of strategic collaboration deals. In June 2022, the company noted that the Walgreens Health business had signed on Buckeye Health Plan as its third payer partner. This collaboration has raised the lives under coverage to 2.3 million, exceeding the company’s 2022 target. In April 2022, Walgreens expanded its partnership with ALTO US to broaden its effort to address theft and organized retail crime across more than 2,200 stores nationwide.
Product Launches: Walgreens Boots’ product launches in the past few months raise our optimism. In June 2022, the company launched its clinical trial business to redefine the patient experience and bolster access and retention in sponsor-led drug development research. The new business will address patient recruitment and enrollment-related challenges in clinical trials, which were further exacerbated by the COVID-19 pandemic. In March 2022, Walgreens, in collaboration with Laboratory Corporation of America Holdings, announced the nationwide availability of “Pixel by LabCorp COVID-19 at-home collection kit” at no cost to individuals who meet clinical guidelines. Adding the kits to Walgreens will enable more communities to access reliable, convenient testing services when required.
Downsides
Dull Sales Performance: Walgreens Boots’ fiscal third-quarter revenues fell short of estimates and declined year over year. The top-line performance was affected by a sales decline at AllianceRx Walgreens.
Pressure on Margin Continues: In the last few years, the slowdown in the generic introduction has been affecting Walgreens Boots’ margins. Of late, increased reimbursement pressure and generic drug cost inflation have been hampering Walgreens’ margin on a significant level.
Competitive Landscape: Walgreens Boots faces headwinds in the form of increased competition from other traditional drug store retailers. There are also risks from other channels, such as supermarkets and mail order operations.
Estimate Trend
In the past 30 days, the Zacks Consensus Estimate for its fiscal 2022 earnings has moved 0.4% down to $5.03.
The Zacks Consensus Estimate for fiscal 2022 revenues is pegged at $132.65 billion, suggesting 3.4% fall from the year-ago reported number.
Zacks Rank and Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN - Free Report) , Merck & Co., Inc. (MRK - Free Report) and Patterson Companies, Inc. (PDCO - Free Report) .
AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 20.1% against the industry’s 33.3% fall.
Merck has a long-term earnings growth rate of 10.1%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13.4%, on average. It currently carries a Zacks Rank #1.
Merck has outperformed its industry in the past year. MRK has gained 21.5% against the industry’s 16.1% growth.
Patterson Companies has an estimated long-term growth rate of 9.6%. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 16.5%. It currently flaunts a Zacks Rank #2 (Buy).
Patterson Companies has outperformed its industry in the past year. PDCO has lost 1% compared with the industry’s 10.9% fall in the past year.
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Here's Why You Should Retain Walgreens Boots (WBA) For Now
Walgreens Boots Alliance, Inc. (WBA - Free Report) is gaining from strategic collaborations and noteworthy product launches. The company ended the third quarter of fiscal 2022 with better-than-expected earnings. Robust sales growth in the Boots business instills optimism. However, overall declining revenues and stiff rivalry do not bode well.
In the past year, the Zacks Rank #3 (Hold) stock has declined 20.9% against a 3% growth of the industry and a 12.1% plunge of the S&P 500.
The renowned pharmacy-led health and beauty retail company has a market capitalization of $32.35 billion. Its third-quarter fiscal 2022 earnings surpassed the Zacks Consensus Estimate by 1.1%.
In the past five years, the company registered earnings growth of 3.3%, which compares to the industry’s 8.6% rise and the S&P 500’s 13.4% increase. The company’s long-term projected growth rate of 5.0% remains behind the industry’s growth projection of 6.3% and the S&P 500’s estimated 11.2% increase.
Image Source: Zacks Investment Research
Let’s delve deeper.
Factors At Play
Q3 Upsides: Walgreens Boots exited third-quarter fiscal 2022 with better-than-expected earnings. The company experienced improved online growth momentum, with digital sales up 25% in the U.S. The Boots business continued its rally in the fiscal third quarter, with robust sales growth across the Boots UK and Boots.com. Further, sales contributions from the newly-formed Walgreens Health segment instill investors’ optimism. The rollout of VillageMD continued to progress well in the fiscal third quarter. VillageMD had 315 total clinics open by quarter-end, indicating an increase of 97 clinics from the year-ago period.
Walgreens Boots also played a significant role in COVID-19 vaccinations and testing, administering 4.7 million vaccinations and 3.9 million tests in the reported quarter.
New Alliances Look Strategic: Of late, Walgreens Boots has inked a series of strategic collaboration deals. In June 2022, the company noted that the Walgreens Health business had signed on Buckeye Health Plan as its third payer partner. This collaboration has raised the lives under coverage to 2.3 million, exceeding the company’s 2022 target. In April 2022, Walgreens expanded its partnership with ALTO US to broaden its effort to address theft and organized retail crime across more than 2,200 stores nationwide.
Product Launches: Walgreens Boots’ product launches in the past few months raise our optimism. In June 2022, the company launched its clinical trial business to redefine the patient experience and bolster access and retention in sponsor-led drug development research. The new business will address patient recruitment and enrollment-related challenges in clinical trials, which were further exacerbated by the COVID-19 pandemic. In March 2022, Walgreens, in collaboration with Laboratory Corporation of America Holdings, announced the nationwide availability of “Pixel by LabCorp COVID-19 at-home collection kit” at no cost to individuals who meet clinical guidelines. Adding the kits to Walgreens will enable more communities to access reliable, convenient testing services when required.
Downsides
Dull Sales Performance: Walgreens Boots’ fiscal third-quarter revenues fell short of estimates and declined year over year. The top-line performance was affected by a sales decline at AllianceRx Walgreens.
Pressure on Margin Continues: In the last few years, the slowdown in the generic introduction has been affecting Walgreens Boots’ margins. Of late, increased reimbursement pressure and generic drug cost inflation have been hampering Walgreens’ margin on a significant level.
Competitive Landscape: Walgreens Boots faces headwinds in the form of increased competition from other traditional drug store retailers. There are also risks from other channels, such as supermarkets and mail order operations.
Estimate Trend
In the past 30 days, the Zacks Consensus Estimate for its fiscal 2022 earnings has moved 0.4% down to $5.03.
The Zacks Consensus Estimate for fiscal 2022 revenues is pegged at $132.65 billion, suggesting 3.4% fall from the year-ago reported number.
Zacks Rank and Key Picks
A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. (AMN - Free Report) , Merck & Co., Inc. (MRK - Free Report) and Patterson Companies, Inc. (PDCO - Free Report) .
AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 20.1% against the industry’s 33.3% fall.
Merck has a long-term earnings growth rate of 10.1%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13.4%, on average. It currently carries a Zacks Rank #1.
Merck has outperformed its industry in the past year. MRK has gained 21.5% against the industry’s 16.1% growth.
Patterson Companies has an estimated long-term growth rate of 9.6%. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 16.5%. It currently flaunts a Zacks Rank #2 (Buy).
Patterson Companies has outperformed its industry in the past year. PDCO has lost 1% compared with the industry’s 10.9% fall in the past year.