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Why You Should Retain Walgreens Boots (WBA) Stock for Now
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Walgreens Boots Alliance, Inc. (WBA - Free Report) is well-poised for growth in the coming quarters, backed by the strength of new partnerships. Progress made in the company’s all four strategic priorities sounds promising. The addition of Summit Health accelerates the build-out of Walgreens’ healthcare growth engine. The company’s long-term growth model buoys optimism. However, escalating costs and a highly leveraged balance sheet are worrisome.
In the past year, this Zacks Rank #3 (Hold) stock has declined 14.2% compared with the 22.3% fall of the industry and the 19% rise of the S&P 500 composite.
The renowned pharmacy-led health and beauty retail company has a market capitalization of $28.19 billion. WBA surpassed estimates in all the trailing four quarters, delivering an average earnings surprise of 2.48%.
Let’s delve deeper.
Factors at Play
New Alliances Seem Strategic: In April 2023, Walgreens entered into a partnership with the Dublin-based biotech company, Prothena Corporation. The collaboration aims to accelerate patient identification and recruitment for Prothena’s ongoing ASCENT-2 multiple ascending dose clinical trial.
Image Source: Zacks Investment Research
In the same month, the U.S. Healthcare segment of Walgreens and VillageMD announced the expansion of Village Medical at Walgreens into Colorado, with three new primary care practices, two in Fort Collins and a third in Longmont. In March 2023, Walgreens, in partnership with DoorDash and Uber, announced free, Same Day Rx Delivery of medications for the prevention and treatment of HIV. The latest offering is available to eligible patients within 15 miles of thousands of participating Walgreens retail pharmacies nationwide.
Progressing Well With Strategic Priorities: In the second quarter of fiscal 2023, Walgreens continued to transform the method of delivering healthcare through physical stores and digital channels. The company has opened its ninth automated micro fulfillment center, now supporting about 3,000 total stores.
Further, the addition of Summit Health is likely to be transformational for the company as it creates one of the largest integrated provider platforms in the United States, delivering quality affordable care for all patient populations, regardless of insurance or payer type. Summit will accelerate the U.S. Healthcare segment to scale and profit.
Long-Term Growth Model Looks Encouraging: Following the announcement to acquire Summit Health-CityMD, the company raised its U.S. Healthcare fiscal year 2025 sales goal to $14.5-$16.0 billion, from $11.0-$12.0 billion expected previously. The segment is also expected to achieve positive adjusted EBITDA by the end of fiscal year 2023.
Looking beyond 2023, the company increased clarity into its long-term growth algorithm, building to low-teens adjusted EPS growth in the fiscal year 2025 and beyond.
Downsides
Q2 Negatives: During the second quarter of fiscal 2023, Pharmacy sales were affected by a 3.5% headwind from AllianceRx Walgreens. The International segment was also impacted by an adverse currency impact of 7.5% in the fiscal second quarter. Moreover, escalating costs and contraction of gross margin remain a concern.
Leveraged Balance Sheet with Heavy Payout Load: Total debt at the end of second-quarter fiscal 2023 was $13.04 billion, much higher than the corresponding cash and cash equivalents of $1.09 billion. With a short-term payable of $4.2 billion, the company displays weak solvency.
Estimate Trend
The Zacks Consensus Estimate for Walgreens’ 2023 earnings per share has moved from $4.50 to $4.45 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $136.1 billion. This suggests a 2.56% rise from the year-ago reported number.
Zimmer Biomet has an earnings yield of 5.17% compared to the industry’s -2.31%. Zimmer Biomet’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. Its shares have gained 42.1% against the industry’s 19.1% decline over the past year.
Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have gained 176.3% compared with the industry’s 18.5% rise over the past year.
PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.
Hologic, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 4.79% compared to the industry’s -7.19%. Shares of HOLX have gained 19.1% compared with the industry’s 18.5% growth over the past year.
Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.
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Why You Should Retain Walgreens Boots (WBA) Stock for Now
Walgreens Boots Alliance, Inc. (WBA - Free Report) is well-poised for growth in the coming quarters, backed by the strength of new partnerships. Progress made in the company’s all four strategic priorities sounds promising. The addition of Summit Health accelerates the build-out of Walgreens’ healthcare growth engine. The company’s long-term growth model buoys optimism. However, escalating costs and a highly leveraged balance sheet are worrisome.
In the past year, this Zacks Rank #3 (Hold) stock has declined 14.2% compared with the 22.3% fall of the industry and the 19% rise of the S&P 500 composite.
The renowned pharmacy-led health and beauty retail company has a market capitalization of $28.19 billion. WBA surpassed estimates in all the trailing four quarters, delivering an average earnings surprise of 2.48%.
Let’s delve deeper.
Factors at Play
New Alliances Seem Strategic: In April 2023, Walgreens entered into a partnership with the Dublin-based biotech company, Prothena Corporation. The collaboration aims to accelerate patient identification and recruitment for Prothena’s ongoing ASCENT-2 multiple ascending dose clinical trial.
Image Source: Zacks Investment Research
In the same month, the U.S. Healthcare segment of Walgreens and VillageMD announced the expansion of Village Medical at Walgreens into Colorado, with three new primary care practices, two in Fort Collins and a third in Longmont. In March 2023, Walgreens, in partnership with DoorDash and Uber, announced free, Same Day Rx Delivery of medications for the prevention and treatment of HIV. The latest offering is available to eligible patients within 15 miles of thousands of participating Walgreens retail pharmacies nationwide.
Progressing Well With Strategic Priorities: In the second quarter of fiscal 2023, Walgreens continued to transform the method of delivering healthcare through physical stores and digital channels. The company has opened its ninth automated micro fulfillment center, now supporting about 3,000 total stores.
Further, the addition of Summit Health is likely to be transformational for the company as it creates one of the largest integrated provider platforms in the United States, delivering quality affordable care for all patient populations, regardless of insurance or payer type. Summit will accelerate the U.S. Healthcare segment to scale and profit.
Long-Term Growth Model Looks Encouraging: Following the announcement to acquire Summit Health-CityMD, the company raised its U.S. Healthcare fiscal year 2025 sales goal to $14.5-$16.0 billion, from $11.0-$12.0 billion expected previously. The segment is also expected to achieve positive adjusted EBITDA by the end of fiscal year 2023.
Looking beyond 2023, the company increased clarity into its long-term growth algorithm, building to low-teens adjusted EPS growth in the fiscal year 2025 and beyond.
Downsides
Q2 Negatives: During the second quarter of fiscal 2023, Pharmacy sales were affected by a 3.5% headwind from AllianceRx Walgreens. The International segment was also impacted by an adverse currency impact of 7.5% in the fiscal second quarter. Moreover, escalating costs and contraction of gross margin remain a concern.
Leveraged Balance Sheet with Heavy Payout Load: Total debt at the end of second-quarter fiscal 2023 was $13.04 billion, much higher than the corresponding cash and cash equivalents of $1.09 billion. With a short-term payable of $4.2 billion, the company displays weak solvency.
Estimate Trend
The Zacks Consensus Estimate for Walgreens’ 2023 earnings per share has moved from $4.50 to $4.45 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $136.1 billion. This suggests a 2.56% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Zimmer Biomet (ZBH - Free Report) , Penumbra (PEN - Free Report) and Hologic, Inc. (HOLX - Free Report) .
Zimmer Biomet has an earnings yield of 5.17% compared to the industry’s -2.31%. Zimmer Biomet’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.38%. Its shares have gained 42.1% against the industry’s 19.1% decline over the past year.
ZBH sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Penumbra, sporting a Zacks Rank #1 at present, has an estimated growth rate of 64.1% for 2024. Penumbra shares have gained 176.3% compared with the industry’s 18.5% rise over the past year.
PEN’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 109.4%.
Hologic, carrying a Zacks Rank #2 (Buy) at present, has an earnings yield of 4.79% compared to the industry’s -7.19%. Shares of HOLX have gained 19.1% compared with the industry’s 18.5% growth over the past year.
Hologic’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 27.3%.