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Evaluating Struggling Walgreens (WBA) Stock Ahead of Q4 Earnings

Benjamin Rains
·3 mins read

Walgreens Boots Alliance WBA hasn’t gained any sustained momentum during the market comeback, with the stock down 37% in 2020, against the S&P 500’s 8% jump. The recent downturn is part of a longer trend. But WBA stock has popped 7% in the last month heading into the release of its Q4 fiscal 2020 financial results that are due out before the opening bell on Thursday, October 15.

Wall Street has worried for the last several years that the broader retail pharmacy industry could be negatively impacted by the proliferation of e-commerce-focused prescription drug delivery from the likes of Amazon AMZN and others. Walgreens Boots might also be under pressure to further diversify after the CVS and Aetna CVS merger, as it deals with an evolving retail and healthcare landscape.

The broader concerns surrounding the entire industry can be seen through the declining stock prices. Walgreens shares have tumbled 50% in the past two years vs. the Retail-Drug Stores Market’s -30% decline—meanwhile, the S&P 500 surged 25%. This downturn extends out over the last five years as well.  

 

 

 

 

 

 

 

 

 

Outlook

WBA’s revenue did climb marginally last quarter, but its adjusted earnings sank roughly 44%. Investors should note that its Boots unit took a major hit in the UK due to Covid-related restrictions. “The adverse impact of COVID-19 on sales in the quarter was approximately $700 million to $750 million, with the majority of the impact related to the Retail Pharmacy International division,” the firm wrote in prepared remarks. “This reflected a dramatic reduction in footfall in Boots UK stores - down 85 percent in April - as consumers were advised to leave home only for food and medicine.”

Looking ahead, Zacks estimates call for WBA’s adjusted Q4 earnings to fall 33% to $0.96 a share, with revenue set to pop 1.2%. The company’s overall fiscal 2020 earnings are projected to sink 22% and Walgreens has also seen its FY21 earnings estimate sink recently. This helps it land a Zacks Rank #5 (Strong Sell) at the moment.

Bottom Line

Walgreens top-line is set to climb in FY21 and WBA stock is up 7% in the last month. Plus, its 5% dividend yield crushes the S&P 500’s 1.6% average and rival CVS at 3.3%. That said, the global pharmacy industry has been hurt by a drop in non-coronavirus related doctor visits and hospital patient admissions.

In the end, investors might want to stay away from WBA until there are signs of a broader turn around for the industry, especially when you consider that its strong dividend yield is artificially inflated by its falling stock price. And Walgreens missed our Q3 earnings estimate by 25%.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
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