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Walgreens Stumbles onto Dow, Futures Down

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Thursday, June 28, 2018

Market futures are again pointing lower ahead of the opening bell, though not precipitously. General indigestion regarding trade tensions persist, though at this hour we’re not seeing anything to pitch stocks significantly in either direction, with the possible exception of an inauspicious debut of Walgreens Boots Alliance (WBA - Free Report) to the Dow Jones Industrial Average.

New Initial Jobless Claims hit the tape as they do every Thursday morning, posting a headline of 227K following the previous week’s unrevised 218K. This marks the first week in the past 5 that initial claims have been higher than 225K, which in previous years during our domestic economic recovery appeared to be the absolute bottom. But with the Trump economy freeing up billions in lower corporate taxes, along with pent-up demand in Construction and Manufacturing, we’ve actually found a range below that, and aside from a couple weeks like this most recent one, have resided there for the past couple months.

Continuing claims, on the other hand, kept its steady dwindling as the labor market approaches peak strength: from 1.726 million the previous week to 1.705 million this week, we remain in awe-inspiring territory consistent with our historically strong employment situation. It wasn’t too long ago we mused over how great it would be for continuing claims to post beneath 2 million per week; those days look far behind us from this vista.

The second revision on Q1 2018 GDP came in a tad disappointing this morning: 2.0% is 20 basis points beneath the first revision, which itself was below the 2.3% initially reported. Keep in mind this is still the seasonally slower initial 3 months of the year, following the holiday season and in the dead of winter. Even still, with such robust economic numbers coming through year-to-date, this does seem to be somewhat of a let-down.

For the good news, simply take these GDP figures and point them toward the initial read on Q2, which we expect next month. Analysts’ consensus are looking for 3%+ growth for the second 3 months of the year, with the Atlanta Fed expecting an eye-popping 4.7% growth, which would be the highest we’ve seen since Q2 2014, before the supply glut in the global oil & gas industry sent prices into a tailspin.

Walgreens shares are down 9% this morning, helping plummet Dow futures just as the pharma and goods retailer stumbles onto the index. Yet the company outperformed expectations on both top and bottom lines for its May-ended fiscal Q3 report, with $1.53 per share on $34.33 billion topping the $1.47 per share and $33.65 billion, respectively.

Same-store sales disappointed in the quarter, however. Guidance was not raised on the top end for fiscal 2018, though it was ratcheted up on the bottom end of the range. For more on WBA’s earnings, click here.

Perhaps we also see negative sentiment for Walgreens based on news this morning that Amazon (AMZN - Free Report) is buying its way into the retail pharma space, announcing the purchase of online pharma service company PillPack. This private firm, founded in 2013, pre-sorts prescriptions and delivers them to patients’ homes. Terms for the acquisition have not been made public at this hour, though the synergies with Amazon’s Prime service are fairly obvious.

Mark Vickery
Senior Editor

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