Earnings preview: Walgreens to benefit from solid prescription volumes in Q2

When Walgreens Boots Alliance (WBA) reports its second-quarter results on April 2 before the opening bell, the market will be looking for updates on the company’s recent healthcare partnership with Microsoft (MSFT).

Wall Street’s earnings estimate for the February-quarter is $1.74 per share, higher by a cent compared to the year-ago quarter. Typically, the company reports earnings numbers that beat the estimates, as they did in each of the previous four quarters. Revenues are seen growing by 4.8% to $34.62 billion.

Like its peers, Walgreens has been revising its business strategy ever since Amazon (AMZA) entered the retail pharmacy space through the PillPack buyout. The key initiatives taken by the Walgreens management in that direction include tie-ups with other retailers like Kroger (KR).

The steady expansion of the company’s pharmacy network and robust prescription volumes, with contributions from Rite Aid, are expected to drive revenue growth in the to-be-reported quarter. Meanwhile, the impact of reimbursement pressure on margins, unfavorable pricing and investments in store infrastructure might weigh on the bottom-line performance.

The steady expansion of the company’s pharmacy network and robust prescription volumes are expected to drive revenue growth

Going forward, the company expects the recently announced ‘transformational cost management program’ to boost earnings, with estimated cost-saving of about $1 billion by the end of the third quarter. Meanwhile, Amazon’s plan to open physical stores for drug sales, tentatively by the end of the year, does not bode well for the traditional pharmacy retailers.

In the first quarter of 2019, Walgreens’ revenues climbed 10% to $34 billion aided by double-digit growth in pharmacy sales, pushing up adjusted earnings by 14% to $1.46 per share. The results also surpassed the numbers projected by analysts.

Related: Walgreens Boots Alliance, Inc. Q1 2019 Earnings Conference Call Transcript

Among others, CVS Health (CVS) last month reported adjusted earnings of $2.14 per share for the fourth quarter on revenues of $54.4 billion, representing double-digit increases in both the cases.

The consensus analyst rating on Walgreens shares is hold, with an average price target of $62. Earlier this month, the stock dropped to a multi-year low, marking a sharp retreat from the recent highs. Having lost about 5% in the past twelve months and 9% since the beginning of the year, the stock continues to underperform the broader market.

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