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Will Walgreens (WBA) Q1 Earnings Gain From Overall Strength?

Zacks Equity Research

Walgreens Boots Alliance, Inc. WBA is slated to release first-quarter and fiscal 2019 results on Dec 11, before the market opens.

In the last reported quarter, the company delivered a positive earnings surprise of 2.78%. Walgreens Boots has outperformed the Zacks Consensus Estimate in the last four quarters, the average positive earnings surprise being 4.82%.

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

Key Catalysts

Over the recent past, Walgreens Boots’ Retail Pharmacy USA division witnessed comparable prescription growth and benefited from a strong retail prescription market. Notably, revenues from this division accounted for more than 76.3% of total fourth-quarter fiscal 2018 revenues.

Also, Walgreens Boots' purchase of 1,932 stores, three distribution centers and related inventory from Rite Aid for a total transaction value of $4.375 billion has already started to prove beneficial for the company with respect to a number of aspects. In this regard, Pharmacy sales, which contributed around 73.6% to the division’s sales in the fourth quarter of fiscal 2018, increased 16.7% year over year. The upside was primarily led by increased prescription volume from the buyout of Rite Aid stores and central specialty. 

 

Walgreens Boots Alliance, Inc. Price and EPS Surprise

 

Walgreens Boots Alliance, Inc. Price and EPS Surprise | Walgreens Boots Alliance, Inc. Quote

Walgreens Boots also benefitted from the transfer of prescriptions from Rite Aid stores. 

Within this segment, Walgreens Boots has been making steady progress on account of increasing prescription volume.  The company believes that the underlying trend in terms of prescription volumes and market share in the United States have been in its favor for quite some time now. Accordingly, in the fourth quarter of 2019, the company accounted for 22.3% of the U.S. retail prescription market.

Several planned developments, early benefits from new pharmacy contracts as well as volume expansion owing to previously-announced pharmacy partnerships have been driving growth in this space.

At the same time, the company has been gaining from its partnership with FedEx regarding existing stores. Moreover, the retail pharmacy market has been seeing rising expenditure on prescription drugs and growing demand for specialty drugs.

Walgreens Boots has also been witnessing growing comparable sales in the health, wellness and beauty groups in the last reported quarter gaining from investments in its top stores.

The Zacks Consensus Estimate for first-quarter total revenues at the Retail Pharmacy USA division is pegged at $25.17 billion, indicating a rise of 13.6% year over year.

Meanwhile, tough market conditions, particularly in retail, have been leading to sluggishness in the Retail Pharmacy International division. Comparable pharmacy sales fell 3.4% in fourth-quarter fiscal 2018 largely due to a drop in UK prescription volumes and continuing reimbursement pressure from the U.K. government.

Excluding the U.K., comp retail sales witnessed solid growth in the Republic of Ireland and Thailand. However, to overcome hurdles, Walgreens Boots is investing in new store and digital content to improve U.K. retail performance. The Zacks Consensus Estimate remained at $3.06 billion for revenues from the Retail Pharmacy International division.

Strong growth in certain emerging markets is expected to consistently drive the company’s Pharmaceutical Wholesale division. The Zacks Consensus Estimate for the division’s first-quarter revenues is $5.91 billion.

The Zacks Consensus Estimate for total revenues of $33.58 billion depicts a 9.3% rise on a year-over-year basis.

On the flip side, Walgreens Boots’ gross margin figure has been declining for sometime now. However, the company is working to gain efficiency and provide high quality, cost-effective pharmacy services in order to reduce pharmacy costs.

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 -0.50%. 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 of 3, which increases the predictive power of ESP.

The Zacks Consensus Estimate for earnings of $1.43 represents an 11.7% improvement on a year-over-year basis.

Stocks Worth a Look

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

athenahealth, Inc. ATHN has an Earnings ESP of +0.94% and is a Zacks #2 (Buy) Ranked player. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Edwards Lifesciences Corporation EW has an Earnings ESP of +0.36% and a Zacks Rank #3.

Orthofix International N.V. OFIX has an Earnings ESP of +5.38% and a Zacks Rank of 2.

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athenahealth, Inc. (ATHN) : Free Stock Analysis Report
 
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Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report
 
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