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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 recent product launches. The company continues to progress in cost-cutting initiatives. However, weak margins and stiff rivalry do not bode well.

In the past year, the Zacks Rank #3 (Hold) stock has dropped 19% compared with a 16.7% fall of the industry and a 17.7% rise of the S&P 500.

The renowned pharmacy-led health and beauty retail company has a market capitalization of $14.21 billion. The company’s earnings surpassed estimates in two of the trailing four quarters and missed the same in two, delivering a surprise of 10.99%, on average.

Let’s delve deeper.

Factors At Play

Product Launches: Walgreens is launching a slew of products, which is driving the company’s growth.

In March 2024, Walgreen's wholly-owned subsidiary — AllianceRx Walgreens Pharmacy — is selected as the exclusive distributor of Mycovia Pharmaceuticals’ VIVJOA (oteseconazole). Walgreens specialty pharmacy patients now have exclusive access to 240+ limited distribution drugs, which are available through Walgreens specialty pharmacy.

In January 2024, Walgreens launched the NHS PharmacyFirst Service in the U.K., which expands the role of Boots pharmacists throughout England to advise and prescribe for the treatment of seven common health conditions.

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.

The Transformational Cost Management Program is multi-faceted. It includes divisional optimization initiatives, global smart spending, global smart organization and the transformation of the company’s information technology capabilities, which is designed to help it achieve increased cost efficiencies.

Zacks Investment ResearchImage Source: Zacks Investment Research

The company is confident in achieving $1 billion of savings in the fiscal 2024. WBA is also working to improve cash flow by prioritizing projects and capital spending. In the first half of 2024, CapEx was $250 million lower than the prior-year period. Walgreens is on track to deliver a $600-million reduction for the full year and $500 million in working capital benefits in the fiscal 2024.

New Alliances Look Strategic: The significant element of the company’s growth strategy is partially dependent upon its ability to identify and complete acquisitions, joint ventures and other strategic partnerships and alliances.

During second-quarter fiscal 2024, Shield sales were up 13% as new health system contracts and the expansion of existing partnerships led to more than 40% increase in the number of patients on service in the reported quarter.


Pressure on Margin Continues: In the past few years, the slowdown in generic introduction has been affecting Walgreens Boots’ margins. Of late, increased reimbursement pressure and generic drug cost inflation have been hampering Walgreens’ margin on a significant level. In second-quarter fiscal 2024, the gross margin contracted 124 basis points to 19%.

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 drugstore retailers, major mass merchants such as Target and Wal-Mart are expanding their pharmacy businesses and enjoying a fair market share. 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 30 days, the Zacks Consensus Estimate for its fiscal 2024 earnings has been constant at $3.23.

The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $145.98 billion, suggesting a 4.9% rise from the year-ago reported number.

Key Picks

Some better-ranked stocks from the broader medical space are Medpace (MEDP - Free Report) , ResMed (RMD - Free Report) and Encompass Health Corporation (EHC - Free Report) .

Medpace, sporting a Zacks Rank #1 (Strong Buy), reported first-quarter 2024 EPS of $3.20, beating the Zacks Consensus Estimate by 30.6%. Revenues of $511 million increased 17.7% from last year’s comparable figure. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medpace has an estimated 2024 earnings growth rate of 26.5% compared with the industry’s 12.3%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 12.8%.

ResMed, sporting a Zacks Rank #1, reported first-quarter 2024 EPS of $2.13, topping the Zacks Consensus Estimate by 10.9%. Revenues of $1.20 billion surpassed the Zacks Consensus Estimate by 1.9%.

RMD has an estimated fiscal 2024 earnings growth rate of 17.9% compared to the industry’s 15.7%. In each of the trailing four quarters, the company delivered an average earnings surprise of 2.8%.

Encompass Health, carrying a Zacks Rank #2, reported first-quarter 2024 adjusted EPS of $1.12, which surpassed the Zacks Consensus Estimate by 20.4%. Net operating revenues of $1.3 billion topped the Zacks Consensus Estimate by 3.6%.

EHC has an estimated long-term earnings growth rate of 15.6% compared with the industry’s 11.7% growth. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 18.7%.

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