Walgreens Boots (WBA) Benefits From Innovation Amid Margin Woe
Walgreens Boots’ WBA various strategic partnerships are expected to benefit the business over the long run. Yet, persistent reimbursement pressure and competitive market offer tough challenges for the company. The stock carries a Zacks Rank #3 (Hold).
Walgreens Boots exited first-quarter fiscal 2023, with better-than-expected earnings and revenues. The company’s U.S. Healthcare business grew, led by key contract wins, continued partnership growth and a strong focus on execution. The company achieved the calendar year 2022 target for co-located VillageMD clinics of 200.
The company continues to play a leading role in COVID-19 vaccinations and testing, administering 8.4 million vaccinations in the reported quarter. Walgreens Boots raised its U.S. Healthcare target in November, including the fiscal year 2025 sales goal to the range of $14.5-$16.0 billion, up from $11.0-$12.0 billion previously. Moreover, the company raised the 2023 sales guidance, reflecting continued growth momentum.
In terms of new launches. Walgreens Boots launched 24 hours same-day delivery, offering the widest range of retail items for around-the-clock delivery across the country. This adds to the company’s broad range of channel access, including one-hour delivery and 30-minute pickup.
Walgreens Boots Alliance, Inc. Price
Walgreens Boots Alliance, Inc. price | Walgreens Boots Alliance, Inc. Quote
In the first quarter of fiscal 2023, the company continued to progress in transforming the pharmacy business and the method of delivering healthcare through physical stores and digital channels. The company efforts are reaping benefits, resulting in more than 2% comp script growth, excluding immunizations in the quarter, up 220 basis points (bps) sequentially. The company is also witnessing mid-single-digit growth in stores with normal hours.
On the flip side, over the past year, Walgreens Boots has underperformed the industry. The stock has lost 32.6% compared with the industry’s 19.1% decline. During the first quarter fiscal 2023, Walgreens’ Pharmacy sales decreased 4.2% compared to the year-ago quarter, negatively impacted by a 7.8% headwind from AllianceRx Walgreens.
Comparable pharmacy sales declined 0.9%, reflecting lower demand for COVID-19 services. The International segment declined year over year due to an adverse currency impact of 15.4%.
In the last few years, a slowdown in generic introduction has been affecting Walgreens Boots’ margins. In addition, of late, increased reimbursement pressure and generic drug cost inflation have been hampering Walgreens Boots’ margin on a significant level.
In the first quarter of fiscal 2023, gross profit fell 8.2% year over year. Gross margin contracted 152 bps to 20.8%. Selling, general and administrative expenses were up 105.9%. The company reported an adjusted operating loss of $6.2 million for the quarter under review compared to $1.3 million of operating profit in the year-ago period.
Key Picks
Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Cardinal Health, Inc. CAH and Merit Medical Systems, Inc. MMSI.
AMN Healthcare, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.9%.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare has gained 2.9% against the industry’s 23.3% decline in the past year.
Cardinal Health, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 11.7%. CAH’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average beat being 3%.
Cardinal Health has gained 49.3% against the industry’s 1.6% decline over the past year.
Merit Medical, flaunting a Zacks Rank #1 at present, has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average beat being 25.4%.
Merit Medical has gained 24.7% against the industry’s 1.6% decline over the past year.
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
Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
Merit Medical Systems, Inc. (MMSI) : Free Stock Analysis Report
AMN Healthcare Services Inc (AMN) : Free Stock Analysis Report
Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report
