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Can Retail Pharmacy USA Aid Walgreen Boots' (WBA) Q2 Earnings?

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Walgreens Boots Alliance, Inc. (WBA - Free Report) is slated to release second-quarter fiscal 2020 results (ending Feb 28, 2020) on Apr 2, before the market opens.

In the last reported quarter, the company reported a negative earnings surprise of 2.14%. Over the trailing four quarters, its earnings outperformed the Zacks Consensus Estimate on two occasions and missed in one, the trailing four-quarter average positive beat being 0.18%. Let’s take a look at how things are shaping up prior to this announcement.

Key Catalysts

Within the 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 are also anticipated to have driven growth in the segment during the fiscal second quarter. Further, prudent cost management within this segment is expected to have offset the lower gross-margin woes.

Several developments that took place over the past few months, 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 Pharmacy, have been boosting growth in this space, of late. All these positives are expected to have contributed to the company’s top-line growth during this period under discussion. 

Overall, the Zacks Consensus Estimate for Retail Pharmacy USA division revenues in the fiscal second quarter is pegged at $26.83 billion, indicating a 2.2% improvement from the year-ago reported figure.

Meanwhile, tough market conditions induced sluggishness in the Retail Pharmacy International division through the fiscal second quarter as well. 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 have affected the fiscal second-quarter performance.

The Zacks Consensus Estimate for Retail Pharmacy International division revenues for the to-be-reported quarter is pinned at $2.99 billion, suggesting a 2.9% dip from the year-earlier reported number.

Within the Pharmaceutical Wholesale division, we expect the company to report solid numbers this time on strong emerging market growth and robust performance in the United Kingdom. Besides, the newly-formed joint venture with McKesson (MCK - Free Report) in Germany has already started to augment Walgreens Boots’ reach and scale in the significant German pharmaceutical wholesale market. This is anticipated to have significantly contributed to the company’s fiscal second-quarter performance.

Nevertheless, Walgreens Boots has been hit by an FDA crackdown on its sale of tobacco and e-cigarettes, especially to teenagers in recent quarters. 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. These downsides might have weighed on the company’s profit margins in the yet-to-be-reported quarter.

Earnings Whispers

Per our proven model, a stock with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) along with a positive Earnings ESP has good chances of beating estimates. This is the case as you can see:

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

Earnings ESP: Walgreens Boots has an Earnings ESP of +2.08%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks Worth a Look

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

Johnson & Johnson (JNJ - Free Report) currently carries a Zacks Rank #3 and has an Earnings ESP of +1.83%. The company is scheduled to report first-quarter 2020 earnings on Apr 14. You can see the complete list of today’s Zacks #1 Rank stocks here.

UnitedHealth Group (UNH - Free Report) has an Earnings ESP of +5.28% and carries a Zacks Rank of 3, at present. The company is slated to release first-quarter numbers on Apr 15.

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