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Will Walgreens Boots' (WBA) Retail Arm Be Dull in Q1 Earnings?

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Walgreens Boots Alliance, Inc. (WBA - Free Report) is slated to release first-quarter fiscal 2021 results on Jan 7, before market open.

In the last-reported quarter, the company reported an earnings surprise of 6.25%. Over the trailing four quarters, its earnings outperformed the Zacks Consensus Estimate on two occasions and missed the same in the other two, the average miss being 3.90%. Let’s take a look at how things have shaped up prior to this announcement.

Factors at Play

Through fiscal first quarter (September to November 2020 end), the stock remained volatile due to the coronavirus-led economic crisis that has pushed traditional bricks-and-mortar retail stores into huge uncertainty. Over the past few months, there had been lifting of restrictions in many regions along with the company’s observations of improvements in customer trends. However, later in November, the resurgence of COVID-19 cases resulted in ‘Limited’ and ‘Regional’ stay-at-home restrictions leading to lack of clarity related to the overall situation.

Retail Pharmacy USA

In fiscal first quarter, Walgreens Boots is expected to have witnessed improved retail sales and prescription volume trends under its Retail Pharmacy USA division on gradual opening up of the economy. The gradual improvement in foot traffic along with increases in basket size and purchases made per visit buoys optimism.

In the earlier-reported quarter, this segment recorded robust sales of personal protective equipment, which was boosted due to the pandemic-led demand for the same. The company also noted continued strength in health and wellness and in personal care over the past few months. These favorable trends are likely to have continued through all the months of fiscal first quarter due to increased health consciousness stemming from the pandemic-led health crisis, thus boosting the company’s top line.

The Zacks Consensus Estimate for Retail Pharmacy USA’s revenues is pegged at $26.99 billion, suggesting an upsurge of 3.3% from the year-ago quarter’s reported figure.

Retail Pharmacy International

The situation is expected to have continued to remain grave for the company’s international businesses during the months of the fiscal first quarter, with international trade mostly remaining at a standstill. In the last-reported quarter, the company continued to face lower footfall across most of its markets in retail pharmacy international, especially in the United Kingdom, due to the continuation of government travel restrictions, increased working from home and localized lockdowns. However, despite footfalls being low, it reflected significant sequential improvement. Also, in the to-be-reported quarter, footfalls are expected to have been low as well despite a sequential improvement due to the easing of travel restrictions during the months of September and October. November restrictions might have further kept revenues low for the company’s Retail Pharmacy International division.

However, it is encouraging to note that sales via the company’s online division, Boots.com, had demonstrated significant improvements in the last-reported quarter. This is likely to have continued during the fiscal first quarter as well due to continued social-distancing norms, ease of operation and localized lockdowns, thus contributing to the segmental revenue.

The Zacks Consensus Estimate for Retail Pharmacy International’s revenues is pegged at $2.41 billion, suggesting a decline of 12.3% from the year-ago quarter’s reported figure.

Pharmaceutical Wholesale

The Pharmaceutical Wholesale division has been performing quite impressively over the past few months. In the last-reported quarter, the segment registered robust growth despite the pandemic-led business challenges, led by the emerging markets of Germany and France. The company has been working actively to support the ongoing healthcare crisis by providing medicines and advice to patients and ensuring seamless operation of the supply chain. These developments are anticipated to have significantly contributed to the company’s fiscal first-quarter performance.

The Zacks Consensus Estimate for Pharmaceutical Wholesale’s revenues is pegged at $6.16 billion, suggesting an uptick of 2.5% from the year-ago quarter’s reported figure.

The ongoing collaboration with LabCorp is progressing well, via which the companies have sought to open at least 600 LabCorp patient centers across the United States, thereby offering diagnostic lab testing services in the community. This process started in fiscal third quarter. Accordingly, this might have contributed to the company’s top-line numbers in the to-be-reported quarter as well.

Also, the company’s multi-year Medicare agreement with UnitedHealthcare (which entails a new co-branded Medicare Advantage plan, with Walgreens being the exclusive Retail Pharmacy company) buoys optimism. This should have registered sales growth during the first quarter.

However, over the past few quarters, Walgreens Boots has been hit by an FDA crackdown on its sale of tobacco and e-cigarettes, especially to teenagers. Additionally, Brexit has been posing a huge threat to Walgreens as sales at its Boots U.K. stores dropped due to deteriorating consumer scenario in the United Kingdom. These downsides might have weighed on the company’s profit margins in the soon-to-be-reported quarter.

What Our Model Suggests

Per our proven model, a stock with a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) along with a positive Earnings ESP has good chances of beating estimates. However, this is not the case here as you can see:

Earnings ESP: Walgreens Boots has an Earnings ESP of -6.29%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #5 (Strong Sell).

Stocks Worth a Look

Here are a few medical stocks worth considering, as these have the right combination of elements to beat on earnings this reporting cycle.

EyePoint Pharmaceuticals, Inc. (EYPT - Free Report) has an Earnings ESP of +370.59% and it currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hologic, Inc. (HOLX - Free Report) has an Earnings ESP of +4.26% and is a Zacks #1 Ranked stock.

Moderna, Inc. (MRNA - Free Report) has an Earnings ESP of +126.60% and it carries a Zacks Rank of 2 at present.

5 Stocks Set to Double

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Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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