Walgreens Boots Alliance (NYSE: WBA) is scheduled to report its fiscal Q4 2021 results on Thursday, October 14. We expect the company to likely post revenue and earnings above the street expectations, primarily driven by post-pandemic recovery in all segments as well as Covid-19 vaccine administration. The company will also benefit from its international pharmaceuticals business, as well as expansion of its online healthcare platform (Find Care), a trend seen over the recent past, as well. We expect the company to navigate well in Q4 based on these factors. Furthermore, our forecast indicates that Walgreens’ valuation is $59 per share, which is 25% above the current market price of around $47, implying WBA stock has more room for growth. Our interactive dashboard analysis on Walgreens Pre-Earnings has additional details.
(1) Revenues expected to be slightly above the consensus estimates
Trefis estimates Walgreens’ Q4 2021 revenues to be around $34.0 billion, slightly above the $33.3 billion consensus estimate. Revenue growth is expected to be driven by growth in all segments, including pharmacy in the U.S. as well as international markets, retail, and pharmacy wholesale business, partly led by post-pandemic recovery. Our dashboard on Walgreens Revenue offers more details on the company’s segments. Furthermore, administration of Covid-19 vaccination will also bolster the overall revenue growth. Walgreens is administering Covid-19 vaccines at over 8,500 locations. However, it should be noted that Walgreens’ management in its previous quarter earnings conference call stated that the vaccine administration peaked in Q3, and it is likely to see a significant drop in Q4 (7 million vaccines vs. 17 million in Q3).
2) EPS also likely to be above the consensus estimates
Walgreens’ Q3 2021 adjusted earnings per share (EPS) is expected to be $1.16 per Trefis analysis, compared to consensus estimate of $1.02. Walgreens’ adjusted net income of $1.3 billion in Q3 2021 reflected an 82% rise from its $0.7 billion figure in the prior-year quarter. This can be attributed to higher revenues and an expansion of margins. For the full-fiscal 2021, we expect the adjusted EPS to be $4.90, compared to $4.75 seen in 2020.
(3) Stock price estimate 25% higher than the current market price
Going by our Walgreens Valuation with an EPS estimate of $4.90 and a P/E multiple of 12x in 2021, this translates into a price of $59, which is 25% above the current market price of around $47. While the 12x figure compares with levels of 8x – 11x seen over the recent years, we believe the P/E multiple will likely increase with margin expansion and better earnings growth over the coming years. WBA stock over the recent years was being weighed down due to headwinds at its international business but the worst now appears to be behind the company. With restructuring initiatives, such as the sale of its alliance healthcare business and setting up a joint-venture in Germany for pharmaceuticals wholesale business, Walgreens can look forward to better earnings growth, and this should mean a revision in its P/E multiple.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year.
While WBA stock may rise in the near term, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Flir Systems vs. CVS Health.
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