Walgreens Boots Alliance (WBA) is set to report second quarter fiscal 2022 earnings results before the opening bell Thursday. Purely from a numbers perspective — whether gross margin or revenue growth — Walgreens has executed relatively well given the obstacles it has faced, namely weak store traffic and supply chain headwinds.
All told, the pharmacy giant has executed relatively well over the past several quarters, delivering beats on both the top and bottom lines. It has also found ways to offset downbeat foot traffic with consistently solid front-end revenue. However, that has not prevented the stock from selling off. Shares are down 10% year to date, while falling 9% over the past year, trailing the S&P 500 in both spans. Investors have also grown frustrated with the company’s seeming inability to find an acquirer for its Boots chain.
However, all of that may soon change. Bank of America, Credit Suisse and Royal Bank of Canada are among banks that are in discussions to help fund the bid, according to a Sky News report. Operating more than 9,000 retail locations across America, Puerto Rico and the U.S. Virgin Islands, Walgreens's valuation is attractive at current levels, given the growth the company is poised to realize over the next several quarters. Some 75% of the company’s revenue and operating profit in the first quarter came from the U.S. retail pharmacy business, compared to 7% for International revenue.
Elsewhere, the market will also focus on the company’s vaccine execution, gauging whether it can continue to mirror the company’s operating metrics which has lead to two straight earnings beats, thanks to strong cost management. This is even as concerns related to higher drug costs have impacted the sector. In other words, signs are pointing upward for the company. For that to matter, on Thursday investors will look for Walgreens to provide even more doses of strong execution.
For the three months that ended February, Wall Street expects the Walgreens to earn $1.38 per share on revenue of $33.23 billion. This compares to the year-ago quarter when earnings came to $1.26 per share on $32.78 billion in revenue. For the full year, ending October, earnings are projected to rise 2.24% year over year to $5.02 per share, while full-year revenue of $131.41 billion would rise 0.2% year over year.
In the first quarter, the company beat on both the top and bottom lines. Q1 revenue increased about 8% year over year to $33.9 billion, surpassing Street estimates by $950 million. While adjusted EPS was $1.68, topping Street estimates by 34 cents. The beat was driven by a strong momentum in the U.S., with retail same-store sales rising 10.6% from, up from 3.7% in the previous year. Just as impressive, same-store sales from its Boots retail segment rise more than 16%.
Not only was this the company’s sixth straight earnings beat, revenue from continuing operations accelerated with about 8% gain, up from a 5% rise in the fourth quarter. As a way to reflect its strong first quarter performance and continued positive momentum, the management also raised its full year adjusted EPS guidance to low-single digit growth, up from flat previously (down 6.7% year-over-year consensus). The increase factored in the gains the company expects to realize from a better labor environment.
Given these factors, an argument can be made that the stock’s recent struggle is unjustified and doesn’t align with the company’s actual performance and the strength of Walgreens’ underlying fundamentals. So investors who are looking for a sustained recovery candidate in the next 12 to 18 months, which also pays a strong dividend yield of 4.5%, can do well owning Walgreens.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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