Walgreens Boots Alliance (WBA - Free Report) shares have surged 17% in the last three months to outpace the S&P 500’s roughly 7% climb as fears that Amazon’s (AMZN - Free Report) pharmaceutical push would doom the pharmacy giant prove overblown. Now the question is should investors consider buying WBA stock ahead of its Q4 earnings release on October 11?
Walgreens announced Thursday that it has taken a minority stake in the subscription-based beauty firm Birchbox in order to offer more high-end cosmetics and attract more millennial customers. The retail giant will start to sell Birchbox-assorted products at 11 stores in major cities. “This collaboration will help enable Walgreens to continue to strengthen our beauty offering and build our prestige portfolio,” Walgreens executive Richard Ashworth said in a statement.
Earlier this week, Walgreens announced a collaboration with Kroger (KR - Free Report) to test out selling various grocery offerings at Walgreens. The pilot program is set to start at 13 Walgreens stores in Northern Kentucky over the next few months. Customers will be able to order Kroger groceries online and pick up orders at Walgreens. Some Kroger options will also be available in Walgreens stores.
In another effort to expand amid a shifting retail market, the pharmacy power launched in late September a Boots flagship store on Alibaba’s (BABA - Free Report) Tmall platform, which is designed for international brands to reach Chinese consumers.
Investors should also note that Walgreens offers a range of delivery and shipping options in order to better compete with Amazon’s over-the-counter drug delivery offerings. The e-commerce giant’s purchase of online pharmacy delivery startup PillPack earlier this year will likely push Walgreens to innovate even more.
Walgreens is also upbeat about its purchase of 1,932 of Rite Aid’s (RAD - Free Report) 4,600 stores. The move helps it stand out against CVS (CVS - Free Report) and Target (TGT - Free Report) . Plus, the firm purchased a 40% stake in a leading Chinese retail pharmacy chain, Sinopharm Holding GuoDa Drugstores Co.
And Walgreens reported strong fiscal third-quarter results, which topped Wall Street estimates.
Price Movement & Valuation
Moving on, let’s look to see how WBA stock has performed recently to help give investors a better understanding of where Walgreens stands. We can see that Walgreens stock has lagged its industry over the last two years and is down over 9% during this stretch.
Shares of WBA are up marginally since the start of 2018, but have started to climb more recently. Walgreens stock has jumped 13% in the last six months and 17% over the last three to help it sit roughly $6 below its 52-week high of $80.68 per share.
Walgreens stock is currently trading at 11.4X forward 12-month Zacks Consensus EPS estimates, which marks a substantial discount compared to its industry’s 17.2X average.
Furthermore, Walgreens stock has traded as high as 20.5X over the last three years, with a three-year median of 15.4X. Therefore, investors should be able to say with some confidence that WBA appears rather inexpensive at its current level.
Outlook & Earnings Trends
Our current Zacks Consensus Estimate is calling for Walgreens’ Q4 revenues to climb by 11.6% to hit $33.64 billion. Meanwhile, Walgreens is projected to see its adjusted quarterly earnings pop by 9.9% to reach $1.44 per share. The company’s full-year EPS figure is expected to expand by 17.3% to touch $5.98.
The retailer has also seen some positive earnings estimate revision activity recently for both Q4 and fiscal 2018. Investors should also note that Walgreens has a solid history of earnings beats. This includes topping our quarterly estimates in the trailing four periods, with a nearly 6% average surprise.
Walgreens is currently a Zacks Rank #3 (Hold) and rocks an “A” grade for Value and a “B” for Growth in our Style Scores system. WBA stock looks like it might be worth buying at the moment based on its strong valuation picture, outlook, and its string of forward-looking growth initiatives.
Walgreens Boots Allianceis set to report its Q4 financial results before the market opens on Thursday, October 11.
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