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Here's Why You Should Hold on to Walgreens Boots (WBA) For Now
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Walgreens Boots Alliance, Inc. (WBA - Free Report) is gaining from its recent product launches. The continued acceleration of Walgreens’ omnichannel offerings and a significant rise in MyWalgreens membership look encouraging. However, pressure on margins and stiff competition do not bode well.
Over the past year, the Zacks Rank #3 (Hold) stock has declined 17% versus 21% growth of the industry and 8.9% rise of the S&P 500.
The renowned pharmacy-led health and beauty retail company has a market capitalization of $39.23 billion. Its earnings for second-quarter fiscal 2022 surpassed the Zacks Consensus Estimate by 14.4%. However, the company’s long-term projected growth rate of 3.6% compares unfavorably with the industry’s growth projection of 5.9%.
Key Drivers
Product Launches: In March 2022, Walgreens, in collaboration with Laboratory Corporation of America Holdings, announced the nationwide availability of “Pixel by LabCorp COVID-19 at-home collection kit” at no cost for individuals who meet clinical guidelines. Adding the kits to Walgreens will enable more communities to access reliable, convenient testing services as and when required.
In August 2021, Walgreens Boots launched 'Scarlet' bank account and debit card nationwide to promote financial security and provide rewards. The company’s iA-automated micro-fulfillment centers currently serve more than 800 Walgreens locations in Phoenix, AR and Dallas, TX. The company is on track to open nine operational markets by the end of fiscal 2022.
New Alliances Look Strategic: The intensifying competition in the U.S. retail drugstore market has compelled Walgreens Boots to diversify its product offerings. During the fiscal second quarter, Walgreens noted that its collaboration with VillageMD is a significant growth catalyst, driving 1,000 co-located clinics across more than 30 markets by 2027. In November 2021, Walgreens Boots and McKesson entered into an agreement to acquire the remaining 30% share of their GEHE Pharma Handel (GEHE) and Alliance Healthcare Deutschland (AHD) joint venture.
Image Source: Zacks Investment Research
Long-Term Growth Model Looks Encouraging: Walgreens is making rapid progress toward building out Walgreens Health to achieve sales of more than $4 billion exiting the fiscal year 2022 and is well on track to reach the goal of $9 billion to $10 billion in sales by fiscal 2025.
Earlier, the company noted that, beyond fiscal 2024, its long-term growth algorithm leads to adjusted earnings per share (EPS) growth of 11 to 13% as the faster-growing and higher-margin Walgreens Health achieves scale.
Downsides
Pressure on Margin Persists: In the last few years, slowdown in the generic introduction has been affecting Walgreens Boots’ margins. In addition, of late, increased reimbursement pressure and generic drug cost inflation have been hampering Walgreens’ margins substantially.
Competitive Landscape: Walgreens Boots faces headwinds in the form of increased competition and tough industry conditions. Even though the company continues to grab market share from other traditional drug store retailers, major mass merchants such as Target and Wal-Mart are expanding their pharmacy businesses and enjoying a fair market share.
Estimate Trend
Over the past 60 days, the Zacks Consensus Estimate for its earnings has moved 1.8% north to $5.05.
The Zacks Consensus Estimate for its 2023 revenues is pegged at $133.04 billion, suggesting a 0.5% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .
McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 49.7% compared with the industry’s 4.7% growth in the past year.
AMN Healthcare, flaunting a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 23.8% versus the 62% industry decline.
Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.
Bio-Rad has an earnings yield of 2.3% versus the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.
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Here's Why You Should Hold on to Walgreens Boots (WBA) For Now
Walgreens Boots Alliance, Inc. (WBA - Free Report) is gaining from its recent product launches. The continued acceleration of Walgreens’ omnichannel offerings and a significant rise in MyWalgreens membership look encouraging. However, pressure on margins and stiff competition do not bode well.
Over the past year, the Zacks Rank #3 (Hold) stock has declined 17% versus 21% growth of the industry and 8.9% rise of the S&P 500.
The renowned pharmacy-led health and beauty retail company has a market capitalization of $39.23 billion. Its earnings for second-quarter fiscal 2022 surpassed the Zacks Consensus Estimate by 14.4%. However, the company’s long-term projected growth rate of 3.6% compares unfavorably with the industry’s growth projection of 5.9%.
Key Drivers
Product Launches: In March 2022, Walgreens, in collaboration with Laboratory Corporation of America Holdings, announced the nationwide availability of “Pixel by LabCorp COVID-19 at-home collection kit” at no cost for individuals who meet clinical guidelines. Adding the kits to Walgreens will enable more communities to access reliable, convenient testing services as and when required.
In August 2021, Walgreens Boots launched 'Scarlet' bank account and debit card nationwide to promote financial security and provide rewards. The company’s iA-automated micro-fulfillment centers currently serve more than 800 Walgreens locations in Phoenix, AR and Dallas, TX. The company is on track to open nine operational markets by the end of fiscal 2022.
New Alliances Look Strategic: The intensifying competition in the U.S. retail drugstore market has compelled Walgreens Boots to diversify its product offerings. During the fiscal second quarter, Walgreens noted that its collaboration with VillageMD is a significant growth catalyst, driving 1,000 co-located clinics across more than 30 markets by 2027. In November 2021, Walgreens Boots and McKesson entered into an agreement to acquire the remaining 30% share of their GEHE Pharma Handel (GEHE) and Alliance Healthcare Deutschland (AHD) joint venture.
Long-Term Growth Model Looks Encouraging: Walgreens is making rapid progress toward building out Walgreens Health to achieve sales of more than $4 billion exiting the fiscal year 2022 and is well on track to reach the goal of $9 billion to $10 billion in sales by fiscal 2025.
Earlier, the company noted that, beyond fiscal 2024, its long-term growth algorithm leads to adjusted earnings per share (EPS) growth of 11 to 13% as the faster-growing and higher-margin Walgreens Health achieves scale.
Downsides
Pressure on Margin Persists: In the last few years, slowdown in the generic introduction has been affecting Walgreens Boots’ margins. In addition, of late, increased reimbursement pressure and generic drug cost inflation have been hampering Walgreens’ margins substantially.
Competitive Landscape: Walgreens Boots faces headwinds in the form of increased competition and tough industry conditions. Even though the company continues to grab market share from other traditional drug store retailers, major mass merchants such as Target and Wal-Mart are expanding their pharmacy businesses and enjoying a fair market share.
Estimate Trend
Over the past 60 days, the Zacks Consensus Estimate for its earnings has moved 1.8% north to $5.05.
The Zacks Consensus Estimate for its 2023 revenues is pegged at $133.04 billion, suggesting a 0.5% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are McKesson Corporation (MCK - Free Report) , AMN Healthcare Services, Inc. (AMN - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .
McKesson, carrying a Zacks Rank #2 (Buy), reported third-quarter fiscal 2022 EPS of $6.15, which beat the Zacks Consensus Estimate of $5.38 by 14.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 49.7% compared with the industry’s 4.7% growth in the past year.
AMN Healthcare, flaunting a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.
AMN Healthcare has outperformed its industry in the past year. AMN has gained 23.8% versus the 62% industry decline.
Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.
Bio-Rad has an earnings yield of 2.3% versus the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.