What To Expect From Walgreens Stock As It Reports Its Q3 Results?

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WBA
Walgreens Boots Alliance

Walgreens Boots Alliance (NYSE: WBA) is scheduled to report its fiscal Q3 2022 results on Thursday, June 30. We expect the company to likely post revenue and earnings above the street expectations, primarily driven by the post-pandemic recovery in the retail business. However, the company-wide sales are expected to see a mid-single-digit decline y-o-y, partly due to a lower contribution from the Covid-19 vaccine administration.

The company should also see continued benefits from its international pharmaceuticals business and the expansion of its healthcare platform – Walgreens Health – a trend seen over the recent quarters. We expect the company to navigate well in Q3 based on these factors. Not only do we expect Walgreens to post Q3 results better than the street estimates, but we believe that its stock has some more room for growth, as discussed below. Our interactive dashboard analysis on Walgreens Earnings Preview has additional details.

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(1) Revenues expected to be slightly above the consensus estimates

  • Trefis estimates Walgreens’ Q3 2022 revenues to be around $32.1 billion, slightly above the $32.0 billion consensus estimate. This compares with the $34.0 billion revenue the company garnered in the prior-year quarter.
  • Revenue growth is expected to be driven by growth in retail, and international segments, primarily led by post-pandemic recovery.
  • The administration of Covid-19 vaccinations is expected to be lower in Q3, impacting the overall revenue growth.
  • Looking at Q2, Walgreens reported a 3% y-o-y rise in revenue to $33.8 billion, driven by 15% growth in both the U.S. retail and the international retail business. This trend is expected to continue in the near term.
  • Our dashboard on Walgreens Revenue offers more details on the company’s revenue and its comparison with peers.

(2) EPS also likely to be above the consensus estimates

  • Walgreens’ Q3 2022 adjusted earnings per share (EPS) is expected to be $0.95 per Trefis analysis, slightly above the consensus estimate of $0.92.
  • Walgreens’ adjusted net income of $1.4 billion in Q2 2022 reflected a 13% rise from its $1.2 billion figure in the prior-year quarter. This can be attributed to higher revenues and around 100 basis points expansion of adjusted operating margins.
  • For the full-fiscal 2022, we expect the adjusted EPS to be lower at $5.07, compared to the $5.31 seen in 2021.

(3) WBA stock has some more room for growth

  • We estimate Walgreens’ Valuation to be $50 per share, which is 19% above the current market price of $42.
  • This represents a forward P/EBITDA of 8x based on Walgreens’ EBITDA.
  • That said, if the company reports upbeat Q3 results and provides an outlook better than the street estimates, it is likely that the P/EBITDA multiple will be revised upward, resulting in even higher levels for WBA stock.

While WBA stock may see higher levels, the Covid-19 crisis 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 Target vs. Amkor.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Jun 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 WBA Return -4% -19% -49%
 S&P 500 Return -6% -18% 74%
 Trefis Multi-Strategy Portfolio -3% -22% 207%

[1] Month-to-date and year-to-date as of 6/28/2022
[2] Cumulative total returns since the end of 2016

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