Walgreens Boots Alliance (WBA - Free Report) stock soared 10% during regular trading Thursday as the market surged on the back of the $2 trillion stimulus package to help the U.S. economy fight back against the coronavirus. Now the question is should investors think about buying Walgreens stock with the pharmacy and retail giant set to report its Q2 fiscal 2020 earnings results on Thursday, April 2?
The Quick Story
Walgreens, which also owns the Boots drugstore chain in Europe, is a global retail and wholesale pharmacy powerhouse that has nearly 19,000 stores in over 25 countries. But Walgreens has faced challenges amid increasing competition from the likes of Amazon (AMZN - Free Report) and other online and discount retailers.
Analysts have also worried that CVS Health’s (CVS - Free Report) acquisition of health insurer Aetna has impacted Walgreens because the relationship between insurers and pharmacists are more vital than ever. And the company’s bottom-line was hit last quarter by shrinking profits in prescription drugs.
The company posted disappointing Q1 results in early January, but CEO Stefano Pessina noted that WBA was “maintaining” its “outlook for the year despite a soft first quarter.” And luckily for investors, Walgreens has been able to keep its stores open as other retailers from Apple (AAPL - Free Report) to Nike (NKE - Free Report) close many of their brick and mortar locations amid the coronavirus-based call for social distancing.
In fact, WBA could potentially see a boost during the coronavirus as people shop for essentials and try to focus more on their health.
WBA shares jumped 10% Thursday to close regular trading at $45.67 a share. This came as part of a much larger market climb that actually saw the Dow jump into a new bull market, just three days after reaching its bear-market low. But the rapid fall and quick rise highlight the coronavirus volatility that could remain.
Despite the one-day jump, WBA stock has been on a brutal run over the last five years and still rests 30% off its 52-week highs. The decline has substantially lowered Walgreens’ valuation, with the stock trading at 6.9X forward 12-month Zacks earnings estimates. This marks a discount against its one-year median of 9.1X and its industry’s 15.7X average.
Meanwhile, the company’s 4.01% dividend yield does help provide income to investors. The yield also tops CVS and the S&P 500’s 2.22% average.
Our Zacks estimates call for WBA’s Q2 revenue to pop 2.2% to reach $35.30 billion. This would top last quarter’s 1.6% jump, as well as Q4 and Q3 of fiscal 2019. Looking further down the road, the company’s fiscal 2020 sales are projected to jump 2.2% and another 3% in 2021, which would come on top of 2019’s 4.1% sales growth.
At the bottom end of the income statement, Walgreens is expected to see its adjusted earnings fall 12.2% to $1.44 a share. This would come in below Q1’s 6% decline, which also fell short of our estimate. WBA’s fiscal 2020 EPS figure is projected to dip 2.5%.
Walgreens is a currently a Zacks Rank #3 (Hold) that does sport an overall “A” VGM score. However, WBA’s longer-term earnings estimates are down from where they were before it posted its first quarter results. Therefore, it might be best to wait to see a more substantial recovery from the Deerfield, Illinois-based retail and pharmacy power before taking a chance.
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