Case Study: Walgreens Boots Alliance (WBA) stock according to high performing analysts
Key Points
Performance
Walgreens Boots Alliance (WBA) shares rose by 4.44% this week; however, on a year-to-date basis, WBA is still down by 7.02%.This compares poorly to the S&P 500 which is up by 7.46% on a year-to-date basis thus far.
Event & Impact
Walgreens posted its 2023 second quarter results this week, beating Wall Street estimates on both the top and bottom lines. During Q2, WBA’s revenue totaled $34.9 billion, beating Wall Street’s consensus estimate by $1.34 billion. Walgreens Q2 non-GAAP earnings-per-share came in at $1.16, beating Wall Street’s consensus estimate by $0.04/share.
Noteworthy News:
Despite beating Wall Street’s expectations and posting full-year guidance which was in-line with previous expectations set by the company, 3 credible Wall Street analysts that Nobias tracks lowered their price targets for WBA shares.
Nobias Insights
44% of recent articles published by credible authors focused on WBA shares offer a “Bearish” bias. 2 out of the 4 credible Wall Street analysts who cover Walgreens believe shares are likely to fall in value. The average price target being applied to WBA by these credible analysts is $42.00, which implies upside potential of approximately 21.5% relative to the stock’s current share price of $34.58.
Bullish Take Marianne Wilson, a Nobias 4-star rated author, said, “Walgreens Boots reported second-quarter earnings and sales that beat estimates even amid a sharp volume decline in COVID vaccines and testing, and sales of COVID tests.”
Bearish Take Spencer Kimbal, a Nobias 4-star rated author, said, “California will not renew a $54 million contract with Walgreens over the drugstore chain’s decision not to sell the abortion pill mifepristone in some states due to legal restrictions.”
WBA Mar 2023
2023 has been a tough year for Walgreens Boots Alliance shareholders. The stock is down by more than 7% on a year-to-date basis, pushing its trailing 12 month results down to -22.76%. Recent headlines haven’t helped the company’s cause.
Bearish Nobias Credible Analysts Opinions:
Spencer Kimbal, a Nobias 4-star rated author, covered Walgreens recent negativity that WBA shares have faced in an article published at CNBC on March 9th, 2023. He wrote, “California will not renew a $54 million contract with Walgreens over the drugstore chain’s decision not to sell the abortion pill mifepristone in some states due to legal restrictions.” “California used the contract to buy specialty prescription drugs for the prison system. The state is reviewing all its business contracts with Walgreens,” he noted.
Kimbal quoted California Governor Gavin Newsom who said, “California will not stand by as corporations cave to extremists and cut off critical access to reproductive care and freedom.” “California is on track to be the fourth largest economy in the world and we will leverage our market power to defend the right to choose,” Newsome continued.
Despite these near-term headwinds, Walgreens beat Wall Street’s estimates on both the top and bottom lines when it reported earnings on March 28th. Coming into the company’s fiscal 2023 Q2 report, Amhed Farhath, a Nobias 4-star rated author, broke down Wall Street’s expectations in a report published at Seeking Alpha. He wrote, “The consensus EPS Estimate is $1.11 (-30.2% Y/Y) and the consensus Revenue Estimate is $33.56B (-0.6% Y/Y).” However, he continued, “Over the last 2 years, WBA has beaten EPS estimates 100% of the time and has beaten revenue estimates 88% of the time.”
Lastly, he put a spotlight on the divergence between top and bottom-line expectations during the recent quarter. Farhath wrote, “Over the last 3 months, EPS estimates have seen 1 upward revision and 12 downward. Revenue estimates have seen 9 upward revisions and 0 downward.”
Bullish Nobias Credible Analysts Opinions:
Marianne Wilson, a Nobias 4-star rated author, covered WBA’s Q2 results in a report that she published at Chain Store Age this week. Wilson started by highlighting WBA’s bottom-line results, stating, “Walgreens Boots reported second-quarter earnings and sales that beat estimates even amid a sharp volume decline in COVID vaccines and testing, and sales of COVID tests.”
“Walgreens reported a net profit of $703 million, or $0.81 a share, in the quarter ended Feb. 28, compared to $883 million, or $1.02 a share, in the year-ago quarter. Adjusted earnings came to $1.16 a share, topping analysts’ forecasts of $1.10 a share,” she continued.
Looking at Walgreens top-line results, Wilson said, “Sales rose 3.3% to $34.86 billion, easily topping estimates $33.53 billion, boosted by an “acceleration” in February.”
Wilson broke down Walgreens operating segment results, stating: “U.S. retail pharmacy sales inched down 0.3% to $27.6 billion, beating estimates of $26.5 billion. Comparable pharmacy prescription sales increased 4.9%, driven by higher prices on brand name drugs.” “Comparable retail sales at Boots UK increased 16% from the previous year marking the eighth consecutive quarter of gains.” “U.S. health care unit revenue jumped to approximately $1.6 billion from $500 billion, with primary care services growing 30% at VillageMD (majority owned by Walgreens), including Summit Health.”
“Home care at CareCentrix was up 25%.” Lastly, she highlighted the company’s updated guidance for 2023, stating, “The company reaffirmed its full-year earnings guidance of $4.45 to $4.65 per share, projecting adjusted earnings growth of mid-20% over the next two quarters.” This confidence shown by management helped to inspire a 4.44% rally this week.
However, even with this rally in mind, WBA shares have posted significant underperformance thus far during 2023. On a year-to-date basis, the S&P 500 is up by 7.46%. WBA shares, on the other hand, are down by 7.02%.
And while the market seemed happy with WBA’s results, the credible analysts that Nobias tracks who cover WBA shares weren’t singing the same bullish tune. 3 credible analysts lowered their price targets for WBA this week.
According to The Fly on the Wall, “Truist analyst David MacDonald lowered the firm's price target on Walgreens Boots Alliance to $40 from $42 and keeps a Hold rating on the shares. The company's Q2 results were "solid" on the top and bottom lines, with Pharmacy and Retail trends remaining solid despite a lingering COVID headwind, the analyst tells investors in a research note. Truist remains neutral on Walgreens to reflect market multiples however, though its model is "under review".” MacDonald is a Nobias 4-star rated analyst.
The Fly on the Wall also stated, “UBS analyst Kevin Caliendo lowered the firm's price target on Walgreens Boots Alliance to $37 from $39 and keeps a Neutral rating on the shares. The firm's biggest takeaway from Walgreens' print was the ambiguity around the company's earnings in VillageMD/Summit, and found management's explanation of Summit's financials not accounting for the annualized impact of Westmed and NJU lacked detail, the analyst tells investors in a research note. UBS believes the company's EPS guidance for the year is achievable, but needs to see improved free cash flow and transparent organic growth in the Healthcare segment before becoming more constructive on the stock.” Caliendo is a Nobias 4-star rated analyst.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Lastly, according to the Fly on the Wall, “Deutsche Bank lowered the firm's price target on Walgreens Boots Alliance to $46 from $47 and keeps a Buy rating on the shares. The company's core fiscal Q2 results "were mixed," the analyst tells investors in a research note. Walgreens maintained its guidance for 2023, with the company now needing to deliver on the promised inflection both in the U.S. pharmacy business as well as the "rapidly maturing" Health segment to deliver on its second half promises, the analyst tells investors in a research note.” Deutsche Bank analyst George Hill is a Nobias 4-star rated analyst.
Overall bias of Nobias Credible Analysts and Bloggers:
Currently, 2 out of the 4 credible analysts who cover WBA shares believe that they’re likely to rise in value. The average price target that these individuals have applied to Walgreens shares is $42.00.
Currently, WBA trades for $34.58; therefore, that average price target implies upside potential of approximately 21.5%. The credible authors that the Nobias algorithm tracks who have recently written reports on WBA are less bullish.
44% of recent articles published on WBA by credible authors have expressed a “bearish” bias with only 38% of credible authors stating the WBA is likely to rise in value.
Disclosure: Nicholas Ward has no WBA position. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.