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Here's Why You Should Retain Walgreens Boots (WBA) For Now
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Walgreens Boots Alliance, Inc. (WBA - Free Report) is well poised to grow in the coming quarters, backed by its continued partnership growth and a strong focus on strategic execution. The company’s long-term growth model looks encouraging. However, weak margins and stiff rivalry do not bode well.
In the past year, the Zacks Rank #3 (Hold) stock has declined 1.6% compared with a 12.3% rise of the industry and a 12.4% rise of the S&P 500.
The renowned pharmacy-led health and beauty retail company has a market capitalization of $18.02 billion. The company’s earnings surpassed estimates in two of the trailing four quarters and missed the same in two, delivering a surprise of 0.77%, on average.
Let’s delve deeper.
Factors At Play
New Alliances Look Strategic: A significant element of a company’s growth strategy is partially dependent upon its ability to identify and successfully complete acquisitions, joint ventures and other strategic partnerships and alliances.
In the fiscal 2023, Horizon Blue Cross Blue Shield was signed on as the fourth payor partner for Walgreens Health. Walgreens Boots also partnered with TelePharm to expand tele-pharmacy services, improve access to care and provide flexibility for how and when patients engage with the pharmacists. In 2023, Walgreens signed 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.
Long-Term Growth Model Looks Encouraging: Walgreens’ financial goals assume a level of productivity improvement, including those reflected in the Transformational Cost Management Program and other business optimization initiatives.
Image Source: Zacks Investment Research
Walgreens Boots raised and accelerated the synergy capture goal from $150 million in 2027 to $200 million in the calendar year 2026. Moreover, the company raised its transformational cost management program savings goal to $4.1 billion. The company is well-positioned to achieve $1 billion in savings in fiscal 2024.
Product Launches: Walgreens is launching a slew of products, which is driving the company’s growth.
In December 2023, Walgreens’ wholly-owned subsidiary — AllianceRx Walgreens Pharmacy — announced that it would distribute Tarsus Pharmaceuticals-manufactured XDEMVY (lotilaner ophthalmic solution) 0.25%.
The same month, Walgreens announced the launch of Rx Savings Finder — a simple-to-use digital tool designed to help customers save money on prescription medications. The new tool consolidates free third-party discount cards, providing patients with a quick and easy way to find lower prices on their Walgreens medications.
Downsides
Pressure on Margin Continues: In the last few years, the slowdown in generic introduction has been affecting Walgreens Boots’ margins. In addition, increased reimbursement pressure and generic drug cost inflation have been hampering Walgreens’ margin significantly recently. In the first quarter of fiscal 2024, the gross margin contracted 239 bps to 18.4%.
Competitive Landscape: Walgreens Boots faces headwinds in the form of increased competition and harsh 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. Notably, the retail wing of CVS Caremark witnessed a record market share gain following the termination of the Walgreens-Express Scripts contract.
Estimate Trend
In the past 90 days, the Zacks Consensus Estimate for its fiscal 2024 earnings has been moved down from $3.40 to $3.25.
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $144.72 billion, suggesting a 4.1% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks from the broader medical space are Stryker Corporation (SYK - Free Report) , Cencora, Inc. (COR - Free Report) and Cardinal Health (CAH - Free Report) .
Stryker, carrying a Zacks Rank #2 (Buy), reported a fourth-quarter 2023 adjusted EPS of $3.46, beating the Zacks Consensus Estimate by 5.8%. Revenues of $5.8 billion outpaced the consensus estimate by 3.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stryker has an estimated earnings growth rate of 11.5% for 2025 compared with the S&P 500’s 9.9%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 5.1%.
Cencora, carrying a Zacks Rank #2, reported a first-quarter fiscal 2024 adjusted EPS of $3.28, which beat the Zacks Consensus Estimate by 14.7%. Revenues of $72.3 billion outpaced the Zacks Consensus Estimate by 5.1%.
COR has an earnings yield of 5.75% compared with the industry’s 1.85%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 6.7%.
Cardinal Health, sporting a Zacks Rank #1, reported second-quarter fiscal 2024 adjusted earnings of $1.82, which beat the Zacks Consensus Estimate by 16.7%. Revenues of $57.45 billion improved 11.6% on a year-over-year basis and also topped the Zacks Consensus Estimate by 1.1%.
CAH has a long-term estimated earnings growth rate of 15.3% compared with the industry’s 11.8% growth. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 15.6%.
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Here's Why You Should Retain Walgreens Boots (WBA) For Now
Walgreens Boots Alliance, Inc. (WBA - Free Report) is well poised to grow in the coming quarters, backed by its continued partnership growth and a strong focus on strategic execution. The company’s long-term growth model looks encouraging. However, weak margins and stiff rivalry do not bode well.
In the past year, the Zacks Rank #3 (Hold) stock has declined 1.6% compared with a 12.3% rise of the industry and a 12.4% rise of the S&P 500.
The renowned pharmacy-led health and beauty retail company has a market capitalization of $18.02 billion. The company’s earnings surpassed estimates in two of the trailing four quarters and missed the same in two, delivering a surprise of 0.77%, on average.
Let’s delve deeper.
Factors At Play
New Alliances Look Strategic: A significant element of a company’s growth strategy is partially dependent upon its ability to identify and successfully complete acquisitions, joint ventures and other strategic partnerships and alliances.
In the fiscal 2023, Horizon Blue Cross Blue Shield was signed on as the fourth payor partner for Walgreens Health. Walgreens Boots also partnered with TelePharm to expand tele-pharmacy services, improve access to care and provide flexibility for how and when patients engage with the pharmacists. In 2023, Walgreens signed 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.
Long-Term Growth Model Looks Encouraging: Walgreens’ financial goals assume a level of productivity improvement, including those reflected in the Transformational Cost Management Program and other business optimization initiatives.
Walgreens Boots raised and accelerated the synergy capture goal from $150 million in 2027 to $200 million in the calendar year 2026. Moreover, the company raised its transformational cost management program savings goal to $4.1 billion. The company is well-positioned to achieve $1 billion in savings in fiscal 2024.
Product Launches: Walgreens is launching a slew of products, which is driving the company’s growth.
In December 2023, Walgreens’ wholly-owned subsidiary — AllianceRx Walgreens Pharmacy — announced that it would distribute Tarsus Pharmaceuticals-manufactured XDEMVY (lotilaner ophthalmic solution) 0.25%.
The same month, Walgreens announced the launch of Rx Savings Finder — a simple-to-use digital tool designed to help customers save money on prescription medications. The new tool consolidates free third-party discount cards, providing patients with a quick and easy way to find lower prices on their Walgreens medications.
Downsides
Pressure on Margin Continues: In the last few years, the slowdown in generic introduction has been affecting Walgreens Boots’ margins. In addition, increased reimbursement pressure and generic drug cost inflation have been hampering Walgreens’ margin significantly recently. In the first quarter of fiscal 2024, the gross margin contracted 239 bps to 18.4%.
Competitive Landscape: Walgreens Boots faces headwinds in the form of increased competition and harsh 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. Notably, the retail wing of CVS Caremark witnessed a record market share gain following the termination of the Walgreens-Express Scripts contract.
Estimate Trend
In the past 90 days, the Zacks Consensus Estimate for its fiscal 2024 earnings has been moved down from $3.40 to $3.25.
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $144.72 billion, suggesting a 4.1% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks from the broader medical space are Stryker Corporation (SYK - Free Report) , Cencora, Inc. (COR - Free Report) and Cardinal Health (CAH - Free Report) .
Stryker, carrying a Zacks Rank #2 (Buy), reported a fourth-quarter 2023 adjusted EPS of $3.46, beating the Zacks Consensus Estimate by 5.8%. Revenues of $5.8 billion outpaced the consensus estimate by 3.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stryker has an estimated earnings growth rate of 11.5% for 2025 compared with the S&P 500’s 9.9%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 5.1%.
Cencora, carrying a Zacks Rank #2, reported a first-quarter fiscal 2024 adjusted EPS of $3.28, which beat the Zacks Consensus Estimate by 14.7%. Revenues of $72.3 billion outpaced the Zacks Consensus Estimate by 5.1%.
COR has an earnings yield of 5.75% compared with the industry’s 1.85%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 6.7%.
Cardinal Health, sporting a Zacks Rank #1, reported second-quarter fiscal 2024 adjusted earnings of $1.82, which beat the Zacks Consensus Estimate by 16.7%. Revenues of $57.45 billion improved 11.6% on a year-over-year basis and also topped the Zacks Consensus Estimate by 1.1%.
CAH has a long-term estimated earnings growth rate of 15.3% compared with the industry’s 11.8% growth. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 15.6%.