Categories Analysis, Health Care

Should you invest in Walgreens Boots Alliance ahead of earnings?

When the company reports Q2 results on March 31, the market will be looking for a 10% increase in earnings to $1.38 per share

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.

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

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.  

Walgreens Boots Alliance Q1 2022 earnings infographic

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.

Costco bets on strong customer loyalty to beat COVID blues

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.

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