Walgreens (WBA) to Report Q3 Earnings: What's in the Cards?

Walgreens Boots Alliance, Inc. WBA is slated to release third-quarter fiscal 2022 results on Jun 30, before market open.

In the fiscal second quarter, the company delivered an earnings surprise of 14.4%. WBA’s earnings outperformed the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 22.12%.

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 U.S. and international front.The quarter’s top-line growth is also 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 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 third-quarter performance and improved its debt position.

United States

Walgreens is likely to have registered growth in U.S. retail pharmacy business, banking on robust demand for COVID-19 vaccinations and tests amid the ongoing pandemic. In the last-reported fiscal second quarter, the company delivered 11.8 million COVID vaccinations and 6.6 million COVID tests (up from more than 4 million tests in the year-ago quarter). During 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 (CDC). Also, the unprecedented prolonged continuation of the flu season is also likely to have driven pharmacy performance in the United States in the to-be-reported quarter.

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

 

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 has been registering impressive results on growing strength in at-home COVID-19 testing and cough, cold, flu. The company has also been witnessing particular strength in personal care and beauty brands. Last month, Revolution Beauty announced its brand Makeup Revolution's expansion into more than 2,800 Walgreens locations and online across the U.S. This collaboration will enable Walgreens to introduce a new brand at an affordable price point to its customers.

Walgreens’ digitally-initiated retail sales are likely to be a positive contributing factor to the U.S. retail business. In the fiscal second quarter, the company saw same-day pickup orders increase to 3.9 million on a sequential basis. WBA enrolled around 96 million myWalgreens members. This momentum is expected to have continued in the fiscal third quarter, benefitting the business’ results.

The Zacks Consensus Estimate for Walgreens’ United States revenues is pegged at $25.19 billion, suggesting a decline of 9.1% from the last reported fiscal second-quarter’s 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. This trend is expected to have continued in the fiscal third quarter, driven by the strong demand for COVID-19 testing and vaccinations, online health care 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 second-quarter earnings update, 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 $5.42 billion, suggesting a fall of 3.2% from the fiscal second quarter’s reported figure.

Walgreens Health

The Walgreens Health segment is likely to have gained from its majority investments in Shields Health and VillageMD.

During the second quarter of fiscal 2022, the company had 47 Walgreens Health Corners in operation. In April 2022, Blue Shield of California and Walgreens Health launched 12 new Walgreens Health Corner locations in the San Francisco Bay Area and Los Angeles County, enhancing access to in-person and virtual care option. The company also opened 94 VillageMD co-located clinics in the last-reported fiscal second quarter, and is currently on track to open 200 co-located clinics by the end of 2022. These developments are anticipated to have contributed to the segment’s performance in the fiscal third quarter.

The Zacks Consensus Estimate for Retail Pharmacy-Walgreens Health revenues is pegged at $789 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 -0.83%. 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 #3.

Stocks to Consider

A few better-ranked stocks in the broader medical space are Alkermes plc ALKS, AMN Healthcare Services, Inc. AMN and Medpace Holdings, Inc. MEDP.

Alkermes has an estimated long-term growth rate of 25.1%. Alkermes’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%. It currently carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alkermes has outperformed the industry in the past year. ALKS has gained 22.6% against the industry’s 41.1% decline in the said period.

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 flaunts a Zacks Rank #1.

AMN Healthcare has outperformed its industry in the past year. AMN has gained 10.7% against the industry’s 51.5% 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.

Medpace has outperformed its industry in the past year. MEDP has declined 16.1% compared with the industry’s 51.5% fall.

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