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Walgreens Boots (WBA) Q4 Earnings: What's in the Cards?

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Walgreens Boots Alliance, Inc (WBA - Free Report) is scheduled to report fourth-quarter and fiscal 2016 results before the market opens on Oct 20.

Last quarter, the company posted a positive earnings surprise of 3.51%. In fact, in the last four quarters, Walgreens Boots’ earnings outpaced the Zacks Consensus Estimate at an average beat of 5.37%. Let’s see how things are shaping up prior to this announcement.

Factors at Play

After the successful integration of Alliance Boots, Walgreens Boots’ proposed acquisition of U.S. retail pharmacy chain, Rite Aid is progressing as planned. The company is in the process of seeking a regulatory approval for the buyout which is expected to be completed by the end of 2016.

WALGREENS BAI Price and EPS Surprise



Meanwhile, the company continues to focus on overall profits and improving its retail gross margin. Notably, Walgreens Boots reported strong results in the third quarter. The company posted adjusted earnings per share of $1.18, surpassing expectations. It also witnessed third-quarter sales of $21.2 billion, an increase of 3.7% year over year in its Retail Pharmacy USA segment. The company expects to maintain this solid trend in the yet to be reported quarter based on strategic partnerships and investments.

Post the last reported quarter, Walgreens Boots launched safe medication disposal kiosk program with installation of drug take-back kiosks in the U.S. It is a drive to reduce the misuse of medications throughout the country and put a check on the rise in overdose deaths. The kiosks allow customers to dispose unwanted, unused or expired prescriptions, including controlled substances, and over-the-counter medications at extra no cost.

To meet the growing need for skin care resources and accessible care and treatment, Walgreens Boots introduced a skin care platform last month. The application allows access to dermatological information, care and treatment. Thus, the company continues to invest in information technology to expand its customer base – a policy adopted by management in the recent past. 

We take a note that Walgreens Boots focuses on strengthening its market position on the back of strong business collaborations across its markets. In the month of August, the company announced a long-term strategic alliance with Prime Therapeutics for a new retail pharmacy network and combination of the companies’ central specialty pharmacy and mail service businesses. These strategic initiatives are expected to boost the company’s top line in the fourth quarter itself.

The company has an impressive current year growth estimate at 16.3%, compared to the industry average of -0.40%.

Walgreens Boots currently expects adjusted EPS in the $4.45–$4.55 range for fiscal 2016, the lower bar being higher than the earlier guidance of $4.35–$4.55.

Earnings Whispers

Our proven model does not conclusively show that Walgreens Boots is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP:  Walgreens Boots has an Earnings ESP of -1.01%. That is because the Most Accurate estimate stands at 98 cents while the Zacks Consensus Estimate is pegged at 99 cents.

Zacks Rank: Walgreens Boots’ Zacks Rank #3 increases the predictive power of ESP. However, the company’s -1.01% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may consider as our model shows that they have the right combination of elements to post an earnings beat in the upcoming quarter:

Glaukos Corporation (GKOS - Free Report) has an Earnings ESP of +200% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Edward Lifesciences Corp. (EW - Free Report) has an Earnings ESP of +2.94% and a Zacks Rank #2.

Invuity, Inc. (IVTY - Free Report) has an Earnings ESP of +15.87% and a Zacks Rank #2.

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