U.S. Markets open in 1 hr 50 mins

Buy Walgreens (WBA) Stock Ahead of Q2 Earnings, Before CBD Push?

Benjamin Rains

Shares of Walgreens Boots Alliance, Inc. WBA have fallen roughly 9% this year, which stands in contrast to the market’s nearly 13% climb and its industry’s 4.5% average gains. The firm took a significant hit earlier this month after the FDA put the retail giant “on notice” for allegedly selling tobacco products to minors.  

Recent News

Walgreens grabbed some negative headlines earlier this month after the FDA named WBA as one of 15 retailers the agency found selling tobacco products to minors. Kroger KR, Walmart, WMT, BP BP, Citgo, and other retailers were also listed in the report. “Walgreens, and other retail chains, should take seriously not only their legal obligations, but also the substantial public health importance of preventing tobacco product sales to minors at their stores,” FDA Commissioner Scott Gottlieb said in a statement.

The report is part of the FDA’s larger push to enforce tobacco laws. Clearly, Walgreens prohibits the sale of tobacco to minors, but these continued slips in actual prevention could lead to more significant action. We should note that Walgreens’ rival CVS CVS stopped selling tobacco a few years ago.

If Walgreens eventually goes the CVS route, its recently announced push into the world of CBD could perhaps help recoup some lost sales. The retail pharmacy powerhouse said that it plans to sell CBD infused creams, patches, and sprays in roughly 1,500 stores, according to multiple reports.

Walgreens’ move into cannabis-based products, which follows CVS, comes as the broader legal marijuana market—and stocks such as Cronos CRON and Aurora Cannabis ACB—in North America explodes. “This product offering is in line with our efforts to provide a wider range of accessible health and wellbeing products and services to best meet the needs and preferences of our customers,” Walgreens spokesman Brian Faith told CNBC (also read: Marijuana ETF Outperforms in Q1: 6 Stocks Leading the Rally).

 

 

Outlook

Clearly, Walgreens’ move into CBD won’t impact its upcoming quarterly results, but it is a positive sign. The need to diversify has become even more important after the CVS/Aetna merger. Plus, Amazon AMZN has expanded its pharmacy business, while Target TGT and Walmart have rolled out more modern retail offerings.

Looking ahead, WBA’s quarterly revenue is projected to pop 5.6% to reach $34.87 billion, based on our current Zacks Consensus Estimate. Meanwhile, the firm’s full-year fiscal 2019 revenue is expected to climb 4.3%.

At the bottom end of the income statement, WBA’s adjusted quarterly earnings are expected to slip 1.7% to $1.70 per share, with its 2019 EPS figure expected to jump 6.6%. Despite the projected full-year positive earnings growth, Walgreens’ earnings estimate revision activity has trended completely in the wrong direction over the last 30 days.

 

 

Bottom Line

Walgreens is a Zacks Rank #4 (Sell) at the moment based on its negative earnings estimate revision picture. Investors will also notice that WBA stock has done practically nothing over the last few years. In fact, Walgreens stock is down 5% over the last five years and 26% in the last 24 months. WBA stock closed regular trading Wednesday at $62.23 per share, down roughly 28% from its 52-week highs. Therefore, Walgreens might be a stock to stay away from until there are signs of a recovery.

The Deerfield, Illinois based firm is scheduled to release its second quarter fiscal 2019 financial results before the opening bell on Tuesday, April 2. So, make sure to head back to Zacks for a complete breakdown of the firm’s actual quarterly metrics.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
BP p.l.c. (BP) : Free Stock Analysis Report
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
Target Corporation (TGT) : Free Stock Analysis Report
 
Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report
 
CVS Health Corporation (CVS) : Free Stock Analysis Report
 
The Kroger Co. (KR) : Free Stock Analysis Report
 
Aurora Cannabis Inc. (ACB) : Free Stock Analysis Report
 
Cronos Group Inc. (CRON) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research