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Will Walgreens (WBA) Q3 Earnings Gain From Overall Strength?

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Walgreens Boots Alliance, Inc. (WBA - Free Report) is slated to release third-quarter fiscal 2018 results before the market opens on Jun 28.

Last quarter, the company delivered a positive earnings surprise of 11.6%. Walgreens Boots has outperformed the Zacks Consensus Estimate in all of the preceding four quarters, the average positive earnings surprise being 5.33%. Let’s take a look at how things are shaping up prior to this announcement.

Key Catalysts

Over the recent past, Walgreens Boots’ Retail Pharmacy USA division has witnessed comparable prescription growth and benefited from strength in the retail prescription market. Notably, revenues from this division accounted for 74.2% of total second-quarter fiscal 2018 revenues.

Several planned developments, early benefits of new pharmacy contracts as well as an increase in volume owing to previously-announced pharmacy partnerships have been driving growth in this space. At the same time, the company has been gaining from its strategic partnership with FedEx with respect to its existing stores.

In the last reported quarter, Walgreens Boots witnessed strength in pharmacy sales on account of increasing prescription volume. The company has already started to gain from the recently acquired Rite Aid stores.

Walgreens Boots Alliance, Inc. Price and EPS Surprise


Moreover, the retail pharmacy market has been seeing rising expenditure on prescription drugs and growing demand for specialty drugs.

Furthermore, the company’s efforts to boost digital capabilities have started paying off. In this regard, around 21% of the company’s retail resale scripts were initiated through digital channels with the Walgreens mobile app recording around 50.6 million downloads since launch.

The Zacks Consensus Estimate for total revenues at the Retail Pharmacy USA division of $25.71 billion reflects a 14.2% rise from a year ago.

Meanwhile, tough market conditions, particularly in retail, have been leading to sluggishness in Retail Pharmacy International division. However, the company has been taking actions like entering into tie-ups and controlling costs to boost segments. The Zacks Consensus Estimate for revenues from the Retail Pharmacy International division of $2.96 billion highlights an improvement of 5.7% from the prior-year quarter.

Strong growth in certain emerging markets is expected to continue to drive the company’s Pharmaceutical Wholesale division. The Zacks Consensus Estimate for the division’s revenues of $5.77 billion shows a rise of 8.9% from the prior-year’s quarter.

The Zacks Consensus Estimate for total revenues of $33.65 billion reflects an 11.7% rise on a year-over-year basis.

On the flip side, Walgreens Boots’ gross margin figure has been declining over the recent past. However, the company is working to gain efficiency and provide high quality and cost-effective pharmacy services in order to reduce pharmacy costs.

Overall, Walgreens Boots fiscal 2018 earnings outlook looks quite promising with the company expecting to register EPS within the range of $5.85 to $6.05. The Zacks Consensus Estimate of earnings of $5.96 per share remains within the guidance range.

Here is what our quantitative model predicts:

Walgreens Boots has the right combination of two main ingredients — a positive Earnings ESP  and a Zacks Rank #3 (Hold) or higher — needed for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Walgreens Boots is +0.88%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Walgreens Boots carries a Zacks Rank #3.

The Zacks Consensus Estimate for earnings of $1.47 reflects a 10.5% rise on a year-over-year basis.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Align Technology, Inc. (ALGN - Free Report) has an Earnings ESP of +5.83% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boston Scientific Corporation (BSX - Free Report) has an Earnings ESP of +0.98% and a Zacks Rank #2.

Henry Schein (HSIC - Free Report) has an Earnings ESP of +0.99% and a Zacks Rank #3.

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