What To Expect From Walgreens Stock As It Reports Its Q4 Results?

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Walgreens Boots Alliance

Walgreens Boots Alliance (NASDAQ: WBA) is scheduled to report its fiscal Q4 2022 results on Thursday, October 13. We expect the company to likely post revenue and earnings above the street expectations, driven by its 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 Q4 based on these factors. Not only do we expect Walgreens to post Q4 results better than the street estimates, but we believe that its stock is undervalued, as discussed below. Our interactive dashboard analysis on Walgreens Earnings Preview has additional details.

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(1) Revenues expected to be above the consensus estimates

  • Trefis estimates Walgreens’ Q4 2022 revenues to be around $32.6 billion, above the $32.1 billion consensus estimate. This compares with the $34.3 billion revenue the company garnered in the prior-year quarter.
  • The company should benefit from growth in retail, and international segments, primarily led by post-pandemic recovery.
  • The administration of Covid-19 vaccinations is expected to be lower in Q4, likely resulting in a revenue decline for the quarter.
  • Looking at Q3, Walgreens reported a 4.2% y-o-y decline in revenue to $32.6 billion, as a 2.7% growth in the Retail segment was more than offset by a 9.6% decline in Pharmacy and a 3.1% decline in Wholesale revenues. This trend is expected to continue in the near term.
  • Our dashboard on Walgreens Revenue offers more details on the company’s revenue and segments.

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

  • Walgreens’ Q4 2022 adjusted earnings per share (EPS) is expected to be $0.81 per Trefis analysis, above the consensus estimate of $0.77.
  • Walgreens’ adjusted net income of $834 million in Q3 2022 reflected a 36% fall from its $1.3 billion figure in the prior-year quarter. This can be attributed to lower revenues and around 150 basis points contraction of adjusted operating margins.
  • For the full-fiscal 2023, we expect the adjusted EPS to be higher at $5.10, compared to an estimated $5.04 in fiscal 2022.

(3) WBA stock is undervalued

  • We estimate Walgreens’ Valuation to be $47 per share, which is 46% above the current market price of $32.
  • Our valuation is based on a forward P/E ratio of 9.4x based on our earnings forecast of $5.04 on a per share and adjusted basis for full-fiscal 2022. This compares with the last three-year average of 9.9x.
  • That said, if the company reports upbeat Q4 results and provides an outlook better than the street estimates, the P/E multiple will likely 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 by how counter-intuitive the stock valuation is for Walmart vs. VMWare.

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 Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 WBA Return 3% -38% -61%
 S&P 500 Return 4% -21% 67%
 Trefis Multi-Strategy Portfolio 100% -22% 211%

[1] Month-to-date and year-to-date as of 10/7/2022
[2] Cumulative total returns since the end of 2016

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