WBA Stock: Should you invest in Walgreens Boots Alliance ahead of earnings?

Walgreens Boots Alliance, Inc.  (NASDAQ: WBA) has been a key contributor to the COVID-19 vaccination campaign, supported by its extensive retail network. The drugstore chain is currently on a drive to diversify and further expand its portfolio by investing heavily in the core business and new ventures. It is planning to continue the investments in 2023 and beyond even as the economy goes through a period of uncertainty and inflation takes a toll on personal finances.

The Deerfield-headquartered company, which sells both prescription and OTC drugs to retail customers and offers tech-enabled healthcare, last year acquired primacy care provider Summit Health-City MD through VillageMD, in which the company holds a major stake.

Valuation Dips

Walgreens’ stock bounced back from a multi-year low after it announced fourth-quarter results in mid-October, but shed some of those gains in recent weeks, ahead of this week’s earnings. Currently, there is hardly any positive factor that suggests a rebound, which means it is not the right time to invest. But Walgreens is a market leader in retail pharmacy and is expected to continue expanding the business. The pandemic has made healthcare a top priority for most people, with the social and economic uncertainties adding to the importance of staying healthy.

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Walgreens Boots Alliance Q4 2022 Earnings Call Transcript

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While it is not easy to predict where the stock is headed in 2023, the fundamentals are strong enough to revive the company’s market value once external conditions become favorable. Moreover, WBA has an impressive dividend yield of around 5%, which adds to its prospects as a dependable long-term investment. So, it goes without saying that selling the shares now would not be a good idea.

Of late, Walgreens’ margins have been under pressure and it is experiencing a sales slowdown that seems to have extended into the new fiscal year. Experts predict a modest year-over-year decline in first-quarter sales to around $33 billion. There will be a corresponding decrease in adjusted profit, which is expected to come in at $1.13 per share. The results will be released on Thursday before regular trading starts.

Ends FY22 on Low Note

In the fourth quarter of 2022, broad-based weakness across all geographical regions resulted in a 5% fall in sales to $32.4 billion. Consequently, earnings, adjusted for special items, plunged to $0.80 per share. Interestingly, in recent quarters, the company’s revenues and profit mostly came in above estimates.

From Walgreens Boots Alliance’s Q4 2022 earnings call:

“With inflation at four-decade highs, consumers are expressing uncertainty about the future and seeking value. At the same time, we know that health and wellness will always be a priority, and increasingly so after COVID-19. Our McKinsey study from last month shows that around 50% of US consumers now report wellness as a top priority in their day-to-day lives, a significant rise from 42% just two years ago. We’re leveraging our footprint, our digital capabilities, our consumer insights, and our essential services to drive overall retail pharmacy growth.”

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UnitedHealth Group Earnings: Highlights of third-quarter 2022 results

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WBA traded down 1% on Tuesday afternoon, continuing the recent weakness. Hovering below its long-term average, currently, the stock is close to the level it stood around six months ago.