Should you invest in Walgreens Boots Alliance ahead of earnings?

Walgreens Boots Alliance, Inc. (NASDAQ: WBA) has been busy enhancing its capabilities in healthcare delivery lately, through various initiatives including M&A deals. After being hit by the pandemic-related disruption initially, customer traffic recovered as people flocked to Walgreens stores for coronavirus tests and vaccination. The high demand for COVID-related items, including booster dose and at-home test kits, resulted in a record increase in same-store sales.  

The Stock

After slipping to multi-year lows, Walgreens’ stock made steady gains early last year though the momentum waned in the second half. It extended the downturn into 2021 and mostly traded below the $50-mark. Market watchers, in general, are bullish on WBA’s prospects, which is expected to gain about 15% in the 12-month period.

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Read management/analysts’ comments on Walgreeens’ Q1 2022 earnings

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However, it is advisable to wait until the upcoming earnings release before investing. Walgreens has hiked the dividend regularly over the years. It currently offers a yield of 4.2%, which is much higher than the S&P 500 average. Considering the company’s promising long-term prospects and favorable valuation, WBA is an ideal option for income investors.  

From Walgreen’s Q4 2021 earnings call transcript:

“Looking ahead of 2022, considering the macro uncertainties, we will continue to take prudent operating strategy as always. From what we have learned from past success, we believe that holding a prudent and steady approach in daily operation is the golden standard for the fintech business when macro uncertainties arise. After all the rectification in 2021, we expect to see a much clearer regulatory framework for the fintech industry in 2022, which should allow industry participants to be more focused on long-term business development.”

Financial Performance

Interestingly, Walgreen reported stronger-than-expected earnings and revenues since the onset of the virus crisis. It started the new fiscal year on an upbeat note, reporting a 53% growth in adjusted earnings for the first quarter. The highlight of the quarter was a 36% growth in the international business, which far outperformed the core domestic segment.

Retail comparable store sales increased in double digits during the three-month period. At $34 billion, total revenues were up 8% year-over-year. The key numbers also surpassed the market’s projections. Buoyed by the positive momentum, the management raised its full-year 2022 earnings outlook. When the company reports second-quarter results on March 31 before the opening bell, the market will be looking for a 10% increase in earnings to $1.38 per share, on revenues of $33.4 billion.

Beyond COVID  

Meanwhile, there are concerns that sales would slow down once the COVID situation improves further and normalcy returns. A pullback in customer traffic would weaken comparable store sales, which does not bode well for the company’s stakeholders.

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Costco bets on strong customer loyalty to beat COVID blues

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In October last year, the company raised its stake in healthcare management services provider VillageMD to 63% by investing $5.2 billion. The deal will allow it to open Village Medicals units at Walgreens stores. In a similar deal, it also acquired a majority stake in health management company CareCentrix.

Over the past twelve months, Walgreens’ stock lost about 9% and slipped below its 52-week average. WBA traded slightly lower on Tuesday afternoon.