Walgreens Boots (WBA) Omnichannel Aids Growth Amid Cost Woes

Walgreens Boots Alliance, Inc.'s WBA various strategic partnerships are expected to benefit the company over the long run. However, it has been reeling under the effects of persistent reimbursement pressure and a competitive market. The stock carries a Zacks Rank #3 (Hold).

Walgreens Boots exited second-quarter fiscal 2022 with better-than-expected earnings and revenues. Impressive performance by both the operating segments buoys optimism. Robust sales of Boots.com instill investor confidence. The strong execution across business segments, led by COVID-19 vaccinations and testing, is encouraging.

The company witnessed continued momentum online in the second quarter, with digital sales up 38% in the United States. The rollout of VillageMD continues with 94 co-located clinics opened at the end of the second quarter, up from 81 clinics at the end of the first quarter, which is impressive. During the fiscal second quarter, Walgreens administered more than 11.8 million COVID-19 vaccinations and 6.6 million COVID-19 tests.

The continued acceleration of Walgreens omnichannel offerings and a significant rise in MyWalgreens membership are notable upsides during the quarter. During the quarter, the company launched the Walgreens COVID-19 Index to advance rapid detection of the Omicron variant and track variant activity by state, which is another upside. The expansion of both margins looks encouraging as well.

The intensifying competition in the U.S. retail drugstore market has compelled Walgreens Boots to diversify its product offerings.

During the fiscal second quarter, Walgreens noted that its collaboration with VillageMD is a significant growth catalyst, driving 1,000 co-located clinics across more than 30 markets by 2027.

Walgreens Boots Alliance, Inc. Price

Walgreens Boots Alliance, Inc. Price

Walgreens Boots Alliance, Inc. price | Walgreens Boots Alliance, Inc. Quote

In November 2021, Walgreens Boots and McKesson entered into an agreement to acquire the remaining 30% share of their GEHE Pharma Handel (GEHE) and Alliance Healthcare Deutschland (AHD) joint venture.

In terms of product launch, in March 2022, Walgreens Boots, in collaboration with Laboratory Corporation of America Holdings, announced the nationwide availability of “Pixel by LabCorp COVID-19 at-home collection kit” at no cost to individuals who meet clinical guidelines. Adding the kits to Walgreens will enable more communities to access reliable, convenient testing services as and when required.

On the flip side, during the fiscal second quarter, Walgreens noted that the strong growth in operating income was offset by the working capital impact of a decline in the AllianceRx Walgreens business, the year-over-year impact of COVID-related government support and increased capital expenditures. Moreover, Pharmacy sales were negatively impacted by the decline in the AllianceRx business.

Also, in the last few years, a slowdown in generic introduction has been affecting Walgreens Boots’ margins. In addition, of late, increased reimbursement pressure and generic drug cost inflation have been hampering Walgreens’ margin significantly.

A weak solvency scenario and a moderately leveraged balance sheet are headwinds. Walgreens Boots exited the second quarter of fiscal 2022 with cash and cash equivalents of $1.89 billion compared with $1.19 billion recorded at the fiscal first-quarter end. Total debt was $13.31 billion at the fiscal second-quarter end, up from $8.98 billion at the first-quarter fiscal 2021 end. Further, the current-year payable debt is coming at $2.10 billion (the current debt level was $1.30 billion at the end of the first quarter of fiscal 2022), much more than the short-term cash level.

Over the past six months, Walgreens Boots underperformed the industry. The stock has lost 12.1% compared with the industry’s 2.5% decline.

Key Picks

A few better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. AMN, Medpace Holdings, Inc. MEDP and Masimo Corporation MASI.

AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has outperformed its industry in the past year. AMN has declined 2.2% versus the industry’s 62.9% fall.

Medpace has a historical growth rate of 27.3%. Medpace’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%. It currently has a Zacks Rank #2 (Buy).

Medpace has outperformed its industry in the past year. MEDP has declined 20.4% compared with the industry’s 62.9% fall.

Masimo has a historical growth rate of 15.1%. Masimo’s earnings beat estimates in each of the trailing four quarters, the average surprise being 4.4%. The company currently carries a Zacks Rank #2.

Masimo has underperformed the industry in the past year. MASI has declined 18.2% compared with a 16.1% industry drop in the said period.

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