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Will Walgreens (WBA) Q4 Earnings Gain From Overall Strength?

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Walgreens Boots Alliance, Inc. (WBA - Free Report) is slated to release fourth-quarter and fiscal 2018 results on Oct 11, before the market opens.

Last reported quarter, the company delivered a positive earnings surprise of 4.08%. Walgreens Boots has outperformed the Zacks Consensus Estimate in all the preceding four quarters, the average positive earnings surprise being 5.97%.

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 witnessed comparable prescription growth and benefited from a strong retail prescription market. Notably, revenues from this division accounted for more than 75% of total third-quarter fiscal 2018 revenues.

Within this segment, Walgreens Boots has been making a good progress on account of an increasing prescription volume. Last reported quarter, total pharmacy sales were up 19.3%, primarily due to higher prescription volume from the acquired Rite Aid stores and central specialty.

Several planned developments, early benefits of new pharmacy contracts as well as volume expansion 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 regarding its existing stores. Moreover, the retail pharmacy market has been seeing a rising expenditure on prescription drugs and growing demand for specialty drugs.

However, on second-quarter fiscal earnings call, Walgreens Boots noted that this was the last quarter before the lapse of the promotional optimization program.

The Zacks Consensus Estimate for fourth-quarter total revenues at the Retail Pharmacy USA division is pegged at $25.30 billion.

Meanwhile, tough market conditions, particularly in retail, have been leading to sluggishness in Retail Pharmacy International division. Last reported quarter, adjusted operating income was down 9.3% majorly due to phasing of certain SG&A expenditures. The remaining decline reflects lower gross profit, largely offset by cost-containment measures.

However, the company has been taking steps like entering into tie-ups and controlling costs to boost segments. The Zacks Consensus Estimate remains at $3.02 billion for revenues from the Retail Pharmacy International division .

Strong growth in certain emerging markets is expected to consistently drive the company’s Pharmaceutical Wholesale division. The Zacks Consensus Estimate for the division’s fourth-quarter revenue is $5.79 billion.

The Zacks Consensus Estimate for total revenues of $33.64 billion depicts an 11.7% rise on a year-over-year basis.

On the flip side, Walgreens Boots’ gross margin figure has been declining over a while. However, the company is working to gain efficiency and provide high quality, 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 in the band of $5.90-$6.05. The Zacks Consensus Estimate for earnings of $5.98 per share remains within this guided 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.

Earnings ESP: Walgreens Boots has an Earnings ESP of +1.02%, indicating a likely earnings surprise. 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 of 3, which increases the predictive power of ESP.

The Zacks Consensus Estimate for earnings of $1.44 represents a 9.9% improvement on a year-over-year basis.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as these too have the perfect combination of elements to come up with an earnings beat this to-be-reported quarter.

Abbott Laboratories (ABT - Free Report) has an Earnings ESP of +0.27% and is a Zacks #3 Ranked player. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Inogen, Inc. (INGN - Free Report) has an Earnings ESP of +0.64% and a Zacks Rank #2 (Buy).

Masimo Corporation (MASI - Free Report) has an Earnings ESP of +0.98% and a Zacks Rank of 2.

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