Pharmaceutical Wholesale to Aid Walgreens' (WBA) Q3 Earnings?

Walgreens Boots Alliance, Inc. WBA is slated to release third-quarter fiscal 2020 results on Jul 9, before market open.

In the last reported quarter, the company reported a negative earnings surprise of 4.83%. Over the trailing four quarters, its earnings outperformed the Zacks Consensus Estimate on three occasions and missed in one, the four-quarter average beat being 1.91%. Let’s take a look at how things have shaped up prior to this announcement.

Factors at Play

Through the fiscal third quarter (March 2020 to May 2020), shares of Walgreens declined consistently on the coronavirus-led economic crisis that pushed all traditional bricks-and-mortar retail stores’ into huge uncertainty. This quarter witnessed intense lockdown and wide implementation of stay-at-home norm across most of the states. This is expected to have resulted in huge sales drop for the company across its Retail Pharmacy USA division.

The situation remained graver for the company’s international businesses during these months with international trade coming almost to a standstill. The problem has furthered with most of the nations implementing infection control measures which includes closing down of all non-essential retail outlets). Sales within the company’s Retail Pharmacy International division are expected to have suffered heavily on these during the third quarter.

Walgreens Boots Alliance, Inc. Price and EPS Surprise

Walgreens Boots Alliance, Inc. Price and EPS Surprise

Walgreens Boots Alliance, Inc. price-eps-surprise | Walgreens Boots Alliance, Inc. Quote

In this regard, we note that though thepandemic-impact was immaterial to the company’s fiscal second-quarter results, the company expected a severe hit in the rest of the fiscal and accordingly refrained from updating its fiscal 2020 guidance. Walgreens noted that although the situation is temporary, given so many rapidly-changing variables related to the pandemic, it is difficult to gauge the potential positive and negative impacts of the pandemic.

Withinthe Pharmaceutical Wholesale division, the company has been working actively to support the ongoing healthcare crisisby providing medicines and advice to patients and by ensuring seamless operations of the supply chain.Besides, the newly-formed joint venture with McKesson in Germany has already started to augment Walgreens Boots’ reach and scale in the significant German pharmaceutical wholesale market. This is anticipated to have significantly contributed to the company’s fiscal third-quarter performance.

In the fiscal third quarter, Walgreens also progressed well with its collaboration with LabCorp LH. The companies sought to open at least 600 LabCorp patient centers across the United States, thereby offering diagnostic lab testing services in the community. Till the last update, LabCorp operated in 109 Walgreen sites across 12 states.

Also, the company entered into a multi-year Medicare agreement with UnitedHealthcare, which entails a new co-branded Medicare Advantage plan with Walgreens being the exclusive Retail Pharmacy company. The company opened four of the 14 targeted resource centers. These should have registered sales growth during the third quarter.

Nevertheless, over the past few quarters, Walgreens Boots has been hit by an FDA crackdown on its sale of tobacco and e-cigarettes, especially to teenagers. Additionally, Brexit has been posing a huge challenge to Walgreens as sales at its Boots UK stores dropped due to deteriorating consumer scenario in the U.K. These downsides might have weighed on the company’s profit margins in the soon-to-be-reported quarter as well.

Earnings Whispers

Per our proven model, a stock with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has good chances of beating estimates. This is not the case here as you can see:

Earnings ESP: Walgreens Boots has an Earnings ESP of +12.47%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Walgreens Boots currently carries a Zacks Rank #4 (Sell).

Stocks Worth a Look

Here are two medical stocks worth considering from the same space with the right mix of elements to surpass expectations this earnings season.

Quest Diagnostics DGX currently carries a Zacks Rank #1 and has an Earnings ESP of +113.3%. The company is scheduled to report second-quarter 2020 earnings on Jul 28. You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher Scientific TMO has an Earnings ESP of +7.06% and carries a Zacks Rank of 2, at present. The company is slated to release second-quarter 2020 numbers on Jul 22.

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