Here’s why you should keep the Walgreens (WBA) boots for now
Walgreens Boots Alliance, Inc. WBA benefits from strategic alliances and a large number of product launches. The company ended the fourth quarter of fiscal 2021 with better than expected results. Solid Boots.com sales look encouraging. The recent investment in Shields Health Solutions also instills optimism in the stock. However, a weak solvency position and fierce competition do not bode well.
Over the past year, Zacks Rank # 3 (Hold) stock has gained 31.7% against 40.2% growth in industry and a 35% increase in the S&P 500.
The well-known drugstore-run health and beauty retail company has a market capitalization of $ 42.44 billion. Its profits for the fourth quarter of fiscal 2021 were 13.6% higher than Zacks’ consensus estimate.
Over the past five years, the company has seen earnings growth of 3.3%, which compares with the industry’s 6.1% rise and the S&P 500’s 2.8% increase. The company’s long-term projected growth rate of 4.4% is lower than the industry’s projected growth of 5.4% and the estimated 11.5% increase in the S&P 500.
Image source: Zacks Investment Research
Let’s dig deeper.
Factors in play
Fourth Quarter Benefits: Walgreens Boots ended the fourth quarter of fiscal 2021 with better than expected earnings and revenue. Strong Boots.com sales inspire investor confidence. The continued acceleration of Walgreens’ omnichannel offerings and increased MyWalgreens memberships are notable benefits during the quarter. Faster development linked to retail collection in the United States, the acceleration of its investment in VillageMD and the growing deployment of Village Medical in Walgreens’ full-service primary care clinics look encouraging. The widening of the two margins is an additional advantage. Meanwhile, Walgreens Boots has a consistent history of paying dividends, with 5.51% annualized dividend growth over five years.
The new alliances seem strategic: We are optimistic about Walgreens Boots’ recent alliances to drive growth in the US retail pharmacy market. In September 2021, through its wholly owned subsidiary, Walgreen Co., the company completed the majority investment in Shields Health Solutions. Additionally, during the fourth fiscal quarter, Walgreens Boots and Blue Shield of California announced a new strategic collaboration to expand access to healthcare, reduce costs and deliver innovative services to improve the customer experience for individuals, families and communities across California.
Product launches: The numerous product launches of Walgreens Boots over the past few months are a cause for optimism. In August 2021, the company launched a nationwide “Scarlet” bank account and debit card to promote financial security and provide rewards. In the fiscal fourth quarter results update, the company announced the launch of Walgreens Health. This new segment will aim to bring together the company’s healthcare ambitions and strengthen new and existing assets to support travel.
Competetion: Walgreens Boots faces significant competition in the retail pharmacy space from notable players like CVS Healthcare Company CVS. Notably, the retail wing of CVS Caremark saw a record market share gain following the termination of the Walgreens-Express Scripts contract. As Walgreens Boots’ poor performance improves with customer feedback, there is concern over CVS management’s comment on retaining most customer earnings.
Low solvency: Walgreens Boots closed fiscal 2021 with cash and cash equivalents of $ 1.19 billion. The company’s total debt of $ 8.98 billion at the end of fiscal 2021 was much higher than the corresponding figure in cash and cash equivalents. In addition, its current year debt of $ 1.30 billion exceeded the current level of cash flow. This is particularly problematic in terms of the level of solvency of the company because, during the year of economic downturn, the company does not have enough liquidity to repay short-term debt.
Macroeconomic woes: Walgreens Boots business activities were affected by difficult market conditions in the International division, in particular the Boots business in the UK. This is mainly due to the economic environment and the uncertainty associated with Brexit. In addition, reduced or stable consumer spending may cause Walgreens Boots and its competitors to offer additional products at promotional prices.
Estimate the trend
Over the past 30 days, Zacks’ consensus estimate for earnings has fallen 1.8% to $ 5.00.
Zacks’ consensus estimate for Q1 FY2022 revenue is set at $ 33.4 billion, which suggests a drop of 8.02% from the figure released a year ago.
Zacks rank and choice of keys
Top ranked actions in the wider medical space include National Vision Holdings, Inc. EYE and Henry Schein, Inc. HSIC, each carrying a Zacks Rank # 2 (Buy). You can see The full list of today’s Zacks # 1 Rank (Strong Buy) stocks here.
National Vision has a long-term profit growth rate of 23%.
Henry Schein shows a long-term profit growth rate of 13.9%.
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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.