Walgreens (WBA) to Report Q4 Earnings: What's in the Cards?

Walgreens Boots Alliance, Inc. WBA is slated to release fourth-quarter fiscal 2022 results on Oct 13, before market open.

In the fiscal third quarter, the company delivered an earnings surprise of 1.05%. WBA’s earnings outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 13.37%.

Let’s look at how things have shaped up prior to this announcement.

Factors at Play  

Walgreens is likely to have gained from continued strategic executions on both the United States and the international front. The quarter’s top line is likely to have benefited from the new Walgreens Health business, which brings equitable, personalized, whole-person healthcare to local communities across America.

In May 2022, Walgreens sold 6 million shares of AmerisourceBergen Corporation common stock pursuant to Rule 144 at $150 per share. The company earlier announced its plans to use the proceeds from the sale, amounting to nearly $900 million for debt paydown and the continued support of its strategic priorities. This strategic development is likely to have contributed to the company’s fiscal fourth-quarter performance and improved its debt position.

The company, on its third-quarter earnings release, noted that the partial monetization of AmerisourceBergen shares has been augmenting its balance sheet and was consistent with the company’s efforts to generate shareholder value.

United States

Walgreens is likely to have registered growth in U.S. retail pharmacy business, banking on demand for vaccinations and tests amid the ongoing series of contagious virus spread. In the fiscal third quarter, U.S. digital sales grew 25% on top of 95% growth a year ago.

In the United States, Walgreens Boots’ expanded partnership with ALTO US, a provider of loss prevention and tech-enabled security services, should have contributed to the fiscal fourth-quarter top line. Meanwhile, its initiative to work together across more than 2,200 stores should have a positive impact on retail shrink in the quarter under review.

Walgreens Boots Alliance, Inc. Price and EPS Surprise

 

Walgreens Boots Alliance, Inc. Price and EPS Surprise

Walgreens Boots Alliance, Inc. price-eps-surprise | Walgreens Boots Alliance, Inc. Quote

In this regard, we note that the company delivered 4.7 million COVID vaccinations in the fiscal third quarter. As of early April, Walgreens has been offering additional boosters to adults aged 50 and older, and certain immunocompromised individuals. In March-end, Walgreens began offering Pfizer and Moderna COVID-19 vaccine boosters to adults aged 50 and older, and certain immunocompromised individuals, post FDA’s authorization and recommendation from the Centers for Disease Control and Prevention. These are likely to have driven the pharmacy performance in the United States in the to-be-reported quarter.

In terms of COVID testing, in the fiscal third quarter, WBA completed 3.9 million in-store tests. The company’s expanded access to offering Pixel by Labcorp, and at-home PCR kits at no cost through curbside and in-store pickup has been seen to gain strong customer acceptance over the past few months. This, too, should have contributed to the top line in the fiscal fourth quarter.

The U.S. retail business is likely to have gained from favorable retail comparable sales growth, as it did in the past few quarters. In terms of health and wellness, the company is expected to have registered positive outcomes on growing strength in at-home COVID-19 testing, and cough, cold and flu.

The Zacks Consensus Estimate for Walgreens’ United States revenues is pegged at $26.44 billion, suggesting a decline of 8.1% from the prior-year quarter’s reported figure.

International

In the last reported quarter, the international business registered an ongoing rebound and strong execution across its retail portfolio, particularly in Boots U.K. The trend is expected to have continued in the fiscal fourth quarter, driven by the strong demand for COVID-19 and monkeypox testing and vaccinations, online healthcare services, and beauty brands. The Boots.com business is also likely to have continued its strong performance on increasing proportion of the U.K. retail sales being derived from the company’s mobile application.

In the fiscal third quarter, sales increased 9.3% year over year, reflecting growth across all international markets, with Boots UK advancing 13.5% and Germany wholesale growing 6.8%.Walgreens noted that the integration of the wholesale business in Germany remained on track, with operational synergy gains coming in ahead of schedule. This development is expected to have accelerated international businesses in the to-be-reported quarter.

The Zacks Consensus Estimate for International revenues is pegged at $5.48 billion, suggesting a fall of 0.5% from the prior-year quarter’s reported figure.

Walgreens Health

The Walgreens Health segment is likely to have gained from its majority investments in Shields Health and VillageMD. VillageMD has been continuing its rollout of co-located clinics, with 120 open until the fiscal third-quarter end. Per the company, it has been on track toward 200 by the end of 2022.

Shields has been rapidly expanding its platform, including new deals with three significant health systems and the launch of Boston Children's Pharmacy. VillageMD and Shields are expected to have driven pro-forma sales growth in the to-be-reported quarter.

The Zacks Consensus Estimate for Retail Pharmacy-Walgreens Health revenues is pegged at $818 million.

What Our Model Suggests

Per our proven model, a stock with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has higher chances of beating estimates. That is not the case here, as you can see:

Earnings ESP: Walgreens has an Earnings ESP of +2.07%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks from the broader medical space are Abiomed ABMD, Bio-Rad Laboratories, Inc. BIO and McKesson MCK. You can see the complete list of today’s Zacks #1 Rank stocks here.

Abiomed, currently sporting a Zacks Rank #1, reported second-quarter 2022 adjusted EPS of $1.25, which beat the Zacks Consensus Estimate by 15.7%. Revenues of $277 million missed the consensus mark by 0.4%.

Abiomed has a historical earnings growth rate of 24%. ABMD’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 10.89%.

Bio-Rad, currently sporting a Zacks Rank #1, reported second-quarter 2022 adjusted EPS of $3.38, which beat the Zacks Consensus Estimate by 37.4%. Revenues of $691.1 million outpaced the consensus mark by 3.9%.

Bio-Rad has a historical earnings growth rate of 31.2%. BIO’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 46.8%.

McKesson reported second-quarter 2022 adjusted EPS of $5.83, which surpassed the Zacks Consensus Estimate by 9.8%. Revenues of $67.2 billion outpaced the Zacks Consensus Estimate by 5.1%. It currently carries a Zacks Rank #2.

McKesson has an earnings yield of 6.9% compared with the industry’s 4.9% yield. MCK’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 13%.

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