[Updated: Sep 1, 2021] Walgreens Update
The stock price of Walgreens (NASDAQ: WBA) has seen a 4.4% rise in yesterday’s trading session, while it is up 38% over the last one year, outperforming the broader markets, with the S&P500 rising 28%. This outperformance can be attributed to the rise in Covid-19 vaccinations in the U.S., and Walgreens benefiting from administering the same at its outlets. That said, WBA stock has been undervalued for quite some time now. The stock was weighed down due to increasing online competition for its international business before the pandemic, and later due to the threat from Amazon entering the pharmaceuticals business.
However, for Walgreens, its focus on community health care centers is an important aspect that will drive its long-term growth, in our view. The company has plans to open over 500 community clinics over the coming years. Walgreens’ peer – CVS Health – has also been working on enhancing its offerings at its stores with more health care services. Now, looking at the near-term, there are multiple positive triggers for WBA stock. Firstly, given the spread of the delta variant, Covid-19 cases in the U.S. have shot up to 160,000 new cases per day (7-day average) currently, compared to a figure of just 12,000 cases toward the end of June. Walgreens is working toward administering these booster shots from September 20. We know that Walgreens has seen a rise in revenues from administering vaccines over the recent quarters, and now with booster shots, the trend may continue in the near term. Secondly, prescription volume will see growth over the coming quarters, with the growth in the U.S. vaccination rate.
Overall, we believe that WBA stock will likely continue to rally in the near term aided by the above discussed factors. Going by our Walgreens Valuation of $59, based on expected earnings of $4.90 per share and a P/E multiple of 12x in 2021, there is more than 15% upside from the current price of $51.
[Updated: Jul 2, 2021] WBA Stock Decline
The stock price of Walgreens (NASDAQ: WBA) has seen a 6.5% fall over the last five trading days, while it was down 7.4% in a single trading session yesterday. The company yesterday reported upbeat fiscal Q3 results and raised its outlook for the full year. Walgreens fiscal Q3 revenue of $34 billion was up 12% y-o-y, while its earnings surged 95% to $1.38. This growth was driven by Covid-19 vaccinations in the U.S., along with a positive impact from the new joint venture in Germany, resulting in a large 75% growth in international sales. Overall, the company’s performance was much better than what street was estimating. Despite an upbeat performance, WBA stock plunged 7%, as investors were concerned over future gains from the Covid-19 vaccination. Note that the company administered 17 million doses of Covid-19 vaccine in Q3, while it estimates only a 7 million figure for Q4.
Now that WBA stock has fallen 7% in just five days, will it resume its downward trajectory over the coming weeks, or is a rise in the stock imminent? According to the Trefis Machine Learning Engine, which identifies trends in the company’s historical stock price data, returns for WBA stock average nearly 3% in the next one-month (21 trading days) period after experiencing a 6.5% drop over the previous week (five trading days).
For Walgreens, Covid-19 testing and vaccination has helped it offset the revenue loss from low prescription volumes and a weak flu season over the recent past. However, we believe that the prescription volume will see growth over the coming quarters, as the Covid-19 crisis winds down. As such, the recent fall in WBA stock, despite a solid performance in Q3, was unwarranted in our view, and investors can use this opportunity to buy WBA stock for near-term gains.
But how would these numbers change if you are interested in holding WBA stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Walgreens stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!
Some Fun Scenarios, FAQs & Making Sense of Walgreens’ Stock Movements:
Question 1: Is the average return for Walgreens Boots Alliance stock higher after a drop?
Answer: Consider two situations,
Case 1: Walgreens Boots Alliance stock drops by -5% or more in a week
Case 2: Walgreens Boots Alliance stock rises by 5% or more in a week
Is the average return for Walgreens Boots Alliance stock higher over the subsequent month after Case 1 or Case 2?
WBA stock fares better after Case 1, with an average return of 1.6% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 0% for Case 2.
In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.
Try the Trefis machine learning engine above to see for yourself how Walgreens Boots Alliance stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
Answer: If you buy and hold Walgreens Boots Alliance stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For WBA stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:
You can try the engine to see what this table looks like for Walgreens Boots Alliance after a larger loss over the last week, month, or quarter.
Question 3: What about the average return after a rise if you wait for a while?
Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.
It’s pretty powerful to test the trend for yourself for Walgreens Boots Alliance stock by changing the inputs in the charts above.
While WBA stock may see higher levels, 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 Freeport vs UnitedHealth Group.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.