Earnings Beat In The Cards For Walgreens Stock?

by Trefis Team
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Walgreens Boots Alliance
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Walgreens Boots Alliance (NYSE: WBA) is scheduled to report its fiscal Q1 2021 results on Thursday, January 7. We expect Walgreens to likely beat the revenue and earnings expectations, driven by higher prescription volume. We expect the company to navigate well based on these trends over the latest quarter.

Our forecast indicates that Walgreens’ valuation is around $49 per share, which is 22% higher than the current market price of around $40. Our interactive dashboard analysis on Walgreens Pre-Earnings has additional details.

(1) Revenues expected to be slightly ahead of consensus estimates

Trefis estimates Walgreens fiscal Q1 2021 revenues to be around $35.3 Bil, slightly ahead of the $35.0 Bil consensus estimate. While a deferment in elective surgeries earlier in the year amid the spread of Covid-19 impacted the overall prescription volume, the gradual opening up of economies and resumption of procedures is likely to have aided sales in Q1. Walgreens’ Q4 fiscal 2020 sales were up 2.3% to $34.6 billion, as a decline in the company’s international retail pharmacy business was more than offset by growth in the U.S. and pharmaceuticals wholesale business. Our dashboard on Walgreens Revenues offers more details on the company’s segments.

2) EPS also likely to be ahead of consensus estimates

Walgreens Q1 2021 adjusted earnings per share (EPS) is expected to be $1.10 per Trefis analysis, almost 7% above the consensus estimate of $1.03. Walgreens adjusted net income of $887 million in fiscal Q4 2020 reflected a 30% drop from its $1.3 billion figure in the prior-year quarter. This can be attributed to higher tax expenses and increased costs during the pandemic. That said, the margins will likely improve going forward, driven by its “The Transformational Cost Management Program,” which aims at annual cost savings of $1.8 billion by 2022. For the full-year, we expect the adjusted EPS to be higher at $5.19 compared to $4.75 in fiscal 2020.

(3) Stock price estimate higher than the current market price

Going by our Walgreens Valuation, with an EPS estimate of around $5.19 and a P/E multiple of around 9x in fiscal 2021, this translates into a price of $49, which is 22% above the current market price of around $40.

Although the continued challenges in the UK business due to increased competition from online retailers will have a notable impact on Walgreen’s international retail pharmacy revenue growth rate in fiscal 2021, we believe the demand for the U.S. retail pharmacy will more than offset that decline, as the spread of the virus subsides.

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

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