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Will Pharmacy International Hit Walgreens (WBA) Q3 Earnings?

Zacks Equity Research

Walgreens Boots Alliance, Inc. WBA is slated to release third-quarter fiscal 2019 results on Jun 27, before market open.

In the last reported quarter, the company witnessed a negative earnings surprise of 3.53%. However, its earnings outperformed the Zacks Consensus Estimate in three of the last four quarters, the average positive surprise being 1.36%.

Let’s take a look at how things are shaping up prior to this announcement.

Key Catalysts

Within retail Pharmacy USA division (accounting for more than 76.1% of total second-quarter fiscal 2019 revenues), Walgreens Boots is benefiting from the transfer of prescriptions from Rite Aid stores. It continues to believe that the underlying trend in terms of prescription volumes and market share in the United States has been in its favor for quite some time now. This can have a bearing on its upcoming quarterly release.

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

Several planned developments, early benefits from new pharmacy contract wins and volume expansion owing to previously-announced pharmacy partnerships have been driving growth in this space. The retail pharmacy market has been witnessing a rise in expenditure on account of prescription drugs and growing demand for specialty drugs. Walgreens Boots has also been witnessing comparable sales growth in the health, wellness and beauty groups, driven by investments in its top stores.

Thus, a widening pharmacy network, healthy prescription volumes and contributions from Rite Aid are expected to contribute to Walgreens Boots’ top line in the to-be-reported quarter. 

On the flip side, Walgreens Boots’ revenue growth within retail Pharmacy USA division of late is slightly getting hampered bylow pharmacy margins and a decline in front-end comparable sales.

In the last reported quarter, comparable retail sales decreased as the company was facing challenging comparisons related to an exceptionally strong prior-year cough, cold and flu season. Further, a persistent de-emphasizing of tobacco is hurting growth, which should get reflected once again in the results for the fiscal third quarter.

Overall, the Zacks Consensus Estimate for total revenues in the fiscal third quarter at the Retail Pharmacy USA division is pegged at $26.16 billion, indicating a rise of 0.95% from the year-ago reported figure.

Meanwhile, tough market conditions, particularly in retail, have been inducing sluggishness in the Retail Pharmacy International division. Contracting U.K. prescription volumes and lingering reimbursement pressure from the U.K. government are headwinds. Walgreens Boots is investing in new stores and digital content to improve its U.K. retail performance.

The Zacks Consensus Estimate of $2.84 billion for revenues from the Retail Pharmacy International division suggests a 5.1% dip from the prior-year reported number.

Strong growth in certain emerging markets is expected to consistently drive the company’s Pharmaceutical Wholesale division.

The Zacks Consensus Estimate of $5.99 billion for Pharmaceutical Wholesale division implies 0.55% growth from the year-earlier reported figure.

Here is what our quantitative model predicts:

Walgreens Boots does not have the right combination of two main ingredients — a positive Earnings ESP  and a Zacks Rank #3 (Hold) or higher — which are needed for increasing the odds of an earnings beat.

Earnings ESP: Walgreens Boots has an Earnings ESP of -1.40%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Walgreens Boots carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank of 4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The Zacks Consensus Estimate for earnings of $1.43 indicates a 6.5% fall from the year-ago reported tally.

Stocks Worth a Look

Here are a few medical stocks worth considering as these have the perfect combination of elements to come up with earnings beat in the quarter to be reported.

Laboratory Corporation of America Holdings LH has an Earnings ESP of +5.24% and a Zacks Rank #2 (Buy).

Merck & Co., Inc. MRK has an Earnings ESP of +1.13% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Merit Medical Systems, Inc. MMSI has an Earnings ESP of +2.00% and a Zacks Rank of 3 stock.

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Merck & Co., Inc. (MRK) : Free Stock Analysis Report
 
Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report
 
Merit Medical Systems, Inc. (MMSI) : Free Stock Analysis Report
 
Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report
 
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