Walgreens Boots Alliance, Inc. ( WBA Quick Quote WBA - Free Report) is gaining from continued partnership growth and a strong focus on strategic execution. The recent product launch looks encouraging. However, weak margins and stiff rivalry do not bode well.
In the past year, the Zacks Rank #3 (Hold) stock has declined 29.3% compared with a 3.8% fall of the
industry and an 13% plunge of the S&P 500.
The renowned pharmacy-led health and beauty retail company has a market capitalization of $28.92 billion. The company’s earnings surpassed estimates in all trailing four quarters, delivering a surprise of 4.72% on average. However, the company’s long-term projected growth rate of 5% remains behind the industry’s growth projection of 6.2%.
Let’s delve deeper.
Factors At Play New Alliances Look Strategic: The intensifying competition in the U.S. pharmacy retail drugstore market has compelled Walgreens Boots to diversify its product offerings through new partnerships.
In Novemeber 2022, VillageMD entered into a definitive agreement to acquire Summit Health-CityMD — a leading provider of primary, specialty and urgent care. With Investments from WBA and Evernorth, the Combined Company Will Deliver a Unique and Comprehensive Patient Experience for Optimal Individual and Community Outcomes.
In October 2022, Walgreens Boots announced the acceleration of its plans to acquire full ownership of CareCentrix, expanding its reach into the growing homecare sector and advancing its healthcare long-term growth strategy.
Product Launches: During the first quarter of fiscal 2023 earnings update, Walgreens noted that it had launched 24-hour same-day delivery, offering the widest range of retail items for around-the-clock delivery nationwide. This adds to the company’s broad range of channel access, including one-hour delivery and 30-minute pickup. Image Source: Zacks Investment Research
In June 2022, Walgreens launched its clinical trial business to redefine the patient experience and bolster access and retention in sponsor-led drug development research. Through this launch, Walgreens aims to enhance participation, especially among diverse populations, while supporting sponsors in meeting the trial goals.
Long-Term Growth Model Looks Encouraging: During the first-quarter-fiscal 2023 earnings call, Walgreens Boots noted that U.S. Healthcare targets raised with Summit Health announcement on November 7, 2022, including the fiscal year 2025 sales goal to $14.5 billion to $16.0 billion, up from $11.0 billion to $12.0 billion previously, and positive adjusted EBITDA expected for the segment by the end of the fiscal year 2023.
Looking beyond 2023, the company increased clarity into the long-term growth algorithm, building to low-teens adjusted EPS growth in the fiscal year 2025 and beyond.
Downsides Pressure on Margin Continues: In the last few years, the slowdown in the generic introduction has been affecting Walgreens Boots’ margins. Of late, increased reimbursement pressure and generic drug cost inflation have been hampering Walgreens’ margins on a significant level. Competitive Landscape: Walgreens Boots faces headwinds from increased competition and tough industry conditions. Even though the company continues to grab market share from other traditional drugstore retailers, major mass merchants such as Target and Wal-Mart are expanding their pharmacy businesses and enjoying a fair market share. Estimate Trend
In the past 60 days, the Zacks Consensus Estimate for its fiscal 2023 earnings has been constant at $4.50.
The Zacks Consensus Estimate for fiscal 2023 revenues is pegged at $134.51 billion, suggesting a 1.4% rise from the year-ago reported number.
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