Walgreens Boots Alliance, Inc.WBA is slated to release fourth-quarter and full-year fiscal 2017 results before the market opens on Oct 25.
Last quarter, the company had posted a positive earnings surprise of 1.53%. It is worth noting that Walgreens has outperformed the Zacks Consensus Estimate in three of the preceding four quarters, with an average positive earnings surprise of 2.63%. Let's take a look at how things are shaping up prior to this announcement.
Factors at Play
Walgreens Boots' Retail Pharmacy USA division continued to witness comparable prescription growth as well as strength in retail prescription market in the last reported quarter. Notably, in the fiscal second quarter, the Retail Pharmacy USA division saw the highest comparable prescription growth in more than seven years.
Several planned developments, early benefits of new pharmacy contracts and volume increase from previously announced strategic pharmacy partnerships have been driving growth in this space over the past few quarters. We expect this growth momentum to continue in the fiscal fourth quarter as well.
Walgreens Boots Alliance, Inc. Price and EPS Surprise
Based on a promising performance in the preceding quarter, Walgreens Boots raised the low end of its guidance for fiscal 2017 by 8 cents and currently expects full-year adjusted earnings in the range of $4.98 to $5.08. Also, the Zacks Consensus Estimate for fiscal fourth-quarter earnings of $1.22 reflects a 14% improvement on a year-over-year basis. Moreover, the Zacks Consensus Estimate for fiscal fourth-quarter revenues of $30.09 billion reflects a 5.1% improvement on a year-over-year basis.
However, the sales performance of the Retail Pharmacy international division continued to disappoint. The reduction in government pharmacy funding in the U.K. has been affecting performance. In absence of any near-term catalyst, we expect the scenario to persist in the upcoming quarter as well.
We also note that slowdown in generic introduction has been affecting Walgreens Boots' margins. Of late, increased reimbursement pressures as well as generic drug cost inflation have been denting margins. In the third quarter of 2017, Walgreens Boots' gross margin contracted on account of reimbursement pressure and price inflation of branded drugs.
Management continues to witness lower profitability in Boots UK comparable pharmacy's gross profit due to lower margin products. Although the company is working to boost efficiency and provide high-quality, cost-effective pharmacy services, the near-term outlook remains bleak.
Meanwhile, market growth is expected to be strong in certain emerging markets backed by the timing of price increase. Also, in order to expand its footprint in Asia, the company launched its first Boots franchise store in South Korea in April 2017. This development is expected to boost the top line in the fiscal fourth quarter.
In September 2017, Walgreens Boots announced the receipt of U.S. Federal Trade Commission (FTC) approval for the purchase of 1,932 stores, three distribution centers and related inventory from Rite Aid for a total value of $4.375 billion. Post the new transaction's initial closing, synergies of $300 million are expected to be entirely realized within four years of its initial completion.
Per Walgreens Boots, this modified merger contract will extend its growth strategy and offer additional operational benefits. It will help the company expand and optimize retail pharmacy network in key U.S. markets, including the Northeast.
Here is what our quantitative model predicts:
Walgreens Bootsdoes not have the right combination of two main ingredients - a positive Earnings ESP and Zacks Rank #3 (Hold) or higher - needed for increasing the odds of an earnings beat.
Zacks ESP : The Earnings ESP forWalgreens Boots is -0.44%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Zacks Rank : Walgreens Boots carries a Zacks Rank #4 (Sell).
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks Worth a Look
Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.
The Cooper Companies, Inc. COO has an Earnings ESP of +0.62% and a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Align Technology, Inc. ALGN has an Earnings ESP of +2.06% and a Zacks Rank #3.
Henry Schein, Inc. HSIC has an Earnings ESP of +0.33% and a Zacks Rank #3.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.