Yahoo Finance Here's Why You Should Retain Walgreens Boots (WBA) For Now
Walgreens Boots Alliance, Inc. WBA is gaining from persistent partnership growth and a strong focus on strategic execution. The upbeat 2023 guidance looks encouraging. However, weak margins and stiff rivalry do not bode well.
In the past year, the Zacks Rank #3 (Hold) stock has declined 26.8% compared with a 28.8% fall of the industry and a 4.5% rise of the S&P 500.
The renowned pharmacy-led health and beauty retail company has a market capitalization of $28.92 billion. The company’s earnings surpassed estimates in all trailing four quarters, delivering a surprise of 2.48% on average. However, the company’s long-term projected growth rate of 3% remains behind the industry’s growth projection of 5.2%.
Let’s delve deeper.
Factors At Play
New Alliances Look Strategic: The intensifying competition in the U.S. pharmacy retail drugstore market compelled Walgreens Boots to diversify its product offerings through new partnerships.
In April 2023, Walgreens entered into a partnership with the Dublin-based biotech company, Prothena Corporation. The collaboration aims to accelerate patient identification and recruitment for Prothena’s ongoing ASCENT-2 multiple ascending dose clinical trial. The Prothena partnership follows Walgreens’ vision to work with all the stakeholders to develop and evaluate effective therapies for Alzheimer’s disease.
The same month, the U.S. Healthcare segment of Walgreens and VillageMD announced the expansion of Village Medical at Walgreens into Colorado, with three new primary care practices, two in Fort Collins and a third in Longmont. Village MD’s physicians and Walgreens’ pharmacy team members work together to provide patients with cost-effective, expert care for chronic conditions and general illnesses and injuries.
Long-Term Growth Model Looks Encouraging: Per the January update, Walgreens Boots noted that U.S. Healthcare targets raised with Summit Health announcement on Nov 7, 2022, including fiscal year 2025 sales goal to $14.5 billion to $16.0 billion, up from $11.0 billion to $12.0 billion previously and positive adjusted EBITDA expected for the segment by the end of fiscal year 2023.
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Looking beyond 2023, the company increased clarity into its long-term growth algorithm, building to low-teens adjusted EPS growth in fiscal 2025 and beyond.
Upbeat Guidance: The company projects adjusted EPS in the range of $4.45-$4.65. The current Zacks Consensus Estimate is pegged at $4.57.
The company expects revenues to be $137.5 billion. The current Zacks Consensus Estimate is pegged at $134.6 billion.
Downsides
Pressure on Margin Continues: In the past few years, the slowdown in the generic introduction has been affecting Walgreens Boots’ margins. Increased reimbursement pressure and generic drug cost inflation have been hampering Walgreens’ margins on a significant level.
Competitive Landscape: Walgreens Boots faces headwinds from increased competition and tough industry conditions. Even though the company continues to grab market share from other traditional drugstore retailers, major mass merchants such as Target and Wal-Mart are expanding their pharmacy businesses and enjoying a fair market share.
Estimate Trend
In the past 60 days, the Zacks Consensus Estimate for its fiscal 2023 earnings has been constant at $4.50.
The Zacks Consensus Estimate for fiscal 2023 revenues is pegged at $136.18 billion, suggesting a 2.6% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Edwards Lifesciences Corporation EW, Intuitive Surgical, Inc. ISRG and Johnson & Johnson JNJ.
Edwards Lifesciences, carrying a Zacks Rank #2 (Buy), reported first-quarter 2023 adjusted earnings per share (EPS) of 62 cents, beating the Zacks Consensus Estimate by 1.6%. Revenues of $1.46 billion outpaced the consensus mark by 4.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Edwards Lifesciences has a long-term estimated growth rate of 6.8%. EW’s earnings surpassed estimates in two of the trailing four quarters, missed the same in one and broke even in the other, the average being 1.2%.
Intuitive Surgical, having a Zacks Rank #2, reported first-quarter 2023 adjusted EPS of $1.23, which beat the Zacks Consensus Estimate by 3.4%. Revenues of $1.70 billion outpaced the consensus mark by 6.9%.
Intuitive Surgical has a long-term estimated growth rate of 13%. ISRG’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average being 1.9%.
Johnson & Johnson reported first-quarter 2023 adjusted earnings of $2.68 per share, beating the Zacks Consensus Estimate by 6.8%. Revenues of $24.75 billion surpassed the Zacks Consensus Estimate by 5%. It currently carries a Zacks Rank #2.
Johnson & Johnson has a long-term estimated growth rate of 5.5%. JNJ’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 3.9%.
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Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report
