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Walgreens Boots (WBA) to Post Q1 Earnings: What's in Store?

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Walgreens Boots Alliance, Inc. WBA is slated to release first-quarter fiscal 2020 results on Jan 8, before the market opens.

In the last reported quarter, the company witnessed a positive earnings surprise of 1.42%. Its earnings outperformed the Zacks Consensus Estimate in three of the last four quarters, the average positive surprise being 0.88%.

Let’s take a look at how things are shaping up prior to this announcement.

Key Catalysts

Within Retail Pharmacy USA division, Walgreens Boots is riding on the transfer of prescriptions from Rite Aid stores. We believe, this prescription volume growth and brand inflation in the United States will likely reflect on the upcoming quarterly results.

Increase in comparable pharmacy sales and comparable prescriptions is also expected to have driven growth in the segment during the first quarter of fiscal 2020.

Several developments including the extension of strategic partnership with Kroger, nationwide offering with FedEx, alliance with Centene, a leading Medicaid insurer, and RxAdvance, a cloud-based pharmacy benefit manager, a multi-year Medicare agreement with UnitedHealthcare comprising a new co-branded Medicare Advantage plan with Walgreens Boots being the only preferred Retail Pharmacyhave been boosting growth in this space of late. All these positives are expected to have contributed to the company’s top line. 

Overall, the Zacks Consensus Estimate for Retail Pharmacy USA division revenues in the fiscal first quarter is pegged at $26.19 billion, indicating an 1.8% improvement from the year-ago reported figure.

Meanwhile, tough market conditions have been inducing sluggishness in the Retail Pharmacy International division. Sales decline in Boots U.K. and the adverse impact of temporary industry-wide NHS underfunding as well as higher generic pricing in the company’s U.K. pharmacy business might affect first-quarter fiscal 2020 results.

The Zacks Consensus Estimate for Retail Pharmacy International division revenues in the fiscal first quarter is pegged at $2.79 billion, suggesting a 3.8% dip from the year-earlier reported number.

Further, shares of Walgreens Boots have been displaying a downtrend since non-healthcare leaders started floating major healthcare ventures. The price competition for Walgreens Boots escalated with the emerging online peers eating into its pharmacy customers. Apart from Amazon, the company has been facing immense competitive pressure from the likes of Walmart, which has been capturing market share in the profitable household and beauty categories. The presence of companies like Costco and dollar store chains, namely Dollar General, which are currently offering the same products as Walgreens Boots across both online and physical stores at much cheaper rates, is also a bother.

Moreover, Walgreens Boots has been hit by an FDA crackdown on its sale of tobacco and e-cigarettes, especially to teenagers through 2019. Additionally, Brexit has been posing a huge challenge to Walgreens as sales at its Boots UK stores dropped due to deteriorated consumer scenario in the U.K.

All the above-mentioned downsides might have weighed on the company’s profit margins in the yet-to-be-reported quarter.

Strong growth in certain emerging markets is likely to have fortified the company’s Pharmaceutical Wholesale division during the fiscal first quarter.

The Zacks Consensus Estimate for Pharmaceutical Wholesale division revenues of $5.87 billion implies 2.9% growth from the year-earlier reported figure.

Earnings Whispers

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise. But this is not the case here as you will see below.

Earnings ESP: Walgreens Boots Alliance has an Earnings ESP of -0.48%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Walgreens Boots Alliance carries a Zacks Rank #3 (Hold).

Stocks Worth a Look

Here are a few medical stocks worth considering from the same space with the right mix of elements to surpass expectations this earnings season.

Alexion Pharmaceuticals, Inc ALXN has an Earnings ESP of +2.07% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Exact Sciences Corporation EXAS has an Earnings ESP of +3.20% and a Zacks Rank of 2.

HealthEquity, Inc. (HQY - Free Report) has an Earnings ESP of +12.50% and a Zacks Rank of 1.

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