What’s Next For Walgreens Stock After A 9% Fall Yesterday?

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Walgreens stock (NYSE: WBA) is down 11% in a week, underperforming the broader markets, with the S&P500 not seeing any change. The company posted mixed Q3 results and downbeat guidance earlier this week, resulting in lower levels for its stock. After its recent fall, we believe that WBA stock has room for growth, as discussed below.

Walgreens’ revenues were up 9% to $35.4 billion in Q3’23, compared to the consensus estimate of $34.2 billion, primarily benefiting from its U.S. Healthcare business, rising 3.3x to $2.0 billion, driven by the VillageMD (including Summit Health) acquisition. U.S. Retail Pharmacy revenue was up 4% to $27.9 billion, and International revenue was up 5% to $5.6 billion. This rise in revenue can primarily be attributed to increased prescription volume and drug price inflation.

The company’s operating margin stood at -1.4% in Q3 2023, compared to 1.9% in the prior-year quarter. Our Walgreens Operating Income Comparison dashboard has more details. The earnings of $1.00 on a per share and adjusted basis was up 3% from $0.96 in the prior-year quarter, but it fell short of the $1.07 consensus estimate.

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Although Walgreens posted mixed Q3 results, it lowered its full-year outlook. It now expects its earnings to be between $4.00 and $4.05 on a per-share and adjusted basis, compared to its prior view of $4.45 and $4.65. The company’s management stated that a significant decline in demand for Covid-19 vaccinations and a weakening consumer spending environment is expected to weigh on its bottom line in the near term. This did not sit well with investors, as evident from the stock price correction. Note that WBA stock is now down 23% year-to-date, being weighed down due to its lower margins and an expected decline in Covid-19 vaccinations.

Looking at the stock price, we estimate Walgreens’ Valuation to be $35 per share, about 20% above the current market price of $29. At its current levels, WBA stock is trading at 7x its expected forward earnings of $4.05 on a per share and adjusted basis for full-fiscal 2023, compared to the last three-year average of a little over 9x, implying that it has some room for growth. Overall, we believe that investors will be better off buying the current dip in WBA stock for gains in the long run.

While WBA stock looks like it can see higher levels, it is helpful to see how Walgreens’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

Returns Jun 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 WBA Return -6% -23% -65%
 S&P 500 Return 5% 14% 96%
 Trefis Multi-Strategy Portfolio 7% 17% 267%

[1] Month-to-date and year-to-date as of 6/28/2023
[2] Cumulative total returns since the end of 2016

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