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Walgreens Boots' (WBA) Product Expansion Aids Amid Rivalry

·4 min read

Walgreens Boots’ WBA various strategic partnerships are expected to benefit the company in the long run. Yet persistent reimbursement pressure and competitive market offer tough challenges for Walgreens Boots. The stock currently carries a Zacks Rank #3 (Hold).

Walgreens Boots exited third-quarter fiscal 2022 with better-than-expected earnings. The U.S. pharmacy arm benefited from improved seasonal script trends. The U.S. retail business gained traction through digital and omnichannel growth from myWalgreens loyalty program, owned brand innovation and other profit streams.

The company experienced improved online growth momentum with digital sales up 25% in the United States. Robust performance across health and wellness and personal care categories during the quarter instilled optimism. Further, the continued acceleration of automated microfulfillment centers was another notable upside during the quarter.

Walgreens Boots also played a significant role in COVID-19 vaccinations and testing, administering 4.7 million vaccinations and 3.9 million tests in the last reported quarter and more than 16 million boosters till the Q3 earnings release. The Boots business continued its rally in the fiscal third quarter, with robust sales growth across Boots UK and Boots.com.

Walgreens Boots Alliance, Inc. Price

Walgreens Boots Alliance, Inc. Price
Walgreens Boots Alliance, Inc. Price

Walgreens Boots Alliance, Inc. price | Walgreens Boots Alliance, Inc. Quote

Further, sales contributions from the newly-formed Walgreens Health segment instill investors’ optimism. The rollout of VillageMD continued to progress well in the fiscal third quarter. VillageMD had a total of 315 clinics opened by the quarter-end, indicating an increase of 97 clinics from the year-ago period.

The intensifying competition in the U.S. retail drugstore market has compelled Walgreens Boots to diversify its product offerings. In June 2022, the company noted that the Walgreens Health business had signed on Buckeye Health Plan as its third payer partner. This collaboration has raised the lives under coverage to 2.3 million, exceeding the company’s 2022 target. Beyond Health Corners, the collaboration also includes asthma and COPD patients as part of a multi-phased approach to support comprehensive expanded clinical services.

In April 2022, Walgreens expanded its partnership with ALTO US to broaden its effort to address theft and organized retail crime across more than 2,200 stores nationwide.

On the flip side, over the past six months, Walgreens Boots has underperformed the industry. The stock has lost 28.5% compared with the industry’s 11.5% decline.

Walgreens Boots’ fiscal third-quarter revenues fell shy of estimates and declined year over year. The top-line performance was affected by a sales decline at AllianceRx Walgreens. Within the Pharmacy business, scripts continued to be challenged by temporary operating hour reductions owing to labor shortages. The company incurred a $683 million charge related to the opioid settlement with the State of Florida in the reported quarter.

Contraction of gross margin does not bode well. Selling, general and administrative expenses rose 14.8% year over year in the quarter under review. These mounting expenses resulted in an operating loss in the quarter, building pressure on the bottom line.

We note that in the last few years, a slowdown in generic introduction has been affecting Walgreens Boots’ margins as well. Additionally, increased reimbursement pressure and generic drug cost inflation in recent times have been hampering Walgreens’ margin significantly.

Key Picks

A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. AMN, ShockWave Medical, Inc. SWAV and McKesson Corporation MCK.

AMN Healthcare has a long-term earnings growth rate of 3.2%. The company surpassed earnings estimates in all the trailing four quarters, delivering a surprise of 15.7%, on average. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has outperformed its industry in the past year. AMN has lost 6.1% against the industry’s 37% fall.

ShockWave Medical, sporting a Zacks Rank #1 at present, has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.

ShockWave Medical has outperformed its industry in the past year. SWAV has gained 35% against the industry’s 32.6% fall in the past year.

McKesson has an estimated long-term growth rate of 9.9%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13%, on average. It currently carries a Zacks Rank #2 (Buy).

McKesson has outperformed its industry in the past year. MCK has gained 71.1% against the industry’s 15.1% fall.


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