HomeMost PopularIs It Time to Steer Clear of Walgreens Stock Before Q4 Earnings?

Is It Time to Steer Clear of Walgreens Stock Before Q4 Earnings?

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Walgreens Preps for Mixed Fiscal Q4 Results Amid Economic Pressures

On Tuesday, October 15, Walgreens (NASDAQ: WBA) will unveil its fiscal Q4 2024 results, ending August. The company is expected to report mixed outcomes, projecting revenue of $34.9 billion against an average forecast of $35.7 billion. Earnings per share (EPS) are anticipated at $0.38, slightly above the predicted $0.36. Though revenue may rise slightly, a significant 43% year-over-year plunge in earnings is predicted. A challenging environment for U.S. retail has pressured the company, prompting a lowered full-year outlook in the last quarter. Additionally, the growth of online pharmacies poses a competitive threat. These challenges have significantly impacted Walgreens’ stock, which is down 65% year-to-date. Our interactive dashboard analysis titled Walgreens’ FY 2024Q4 Earnings Preview provides further insights into the expected trends for the quarter.

Key Factors Influencing Walgreens’ Q4 Performance

Walgreens is likely to benefit from the ongoing rise in drug prices and the expansion of its pharmacy services. The healthcare segment, particularly its primary care offerings, has been a strong performer and is likely to continue this trend. Slight growth is also expected from Walgreens’ international operations, including Boots UK and their German wholesale business. However, retail sales may decline due to a tough economic landscape, which has negatively affected consumer sentiment.

The company is working hard on cost management and has initiated a plan aimed at achieving $1 billion in savings this year. Despite these efforts, adjusted operating margins have declined by 100 basis points thus far. Earnings are projected to drop 43% year-over-year to $0.36 per share based on current estimates.

Walgreens’ Prior Quarter Performance

In Q3 2024, Walgreens’ revenue rose 2.6% to $36.4 billion, driven largely by its U.S. Healthcare business, which increased by 8% to $2.1 billion, attributed to the VillageMD (including Summit Health) acquisition. The U.S. Retail Pharmacy sector saw a 2% increase to $28.5 billion, while international revenue grew by 3% to $5.7 billion. This revenue growth was mainly due to higher prescription volumes and rising drug prices.

However, operating margins fell to 1.4% in Q3 2024 from 2.4% the previous year. Adjusted earnings per share of $0.63 marked a 37% decline from the $1.00 reported in the same quarter last year. Walgreens’ overall performance was disappointing, prompting a reduced full-year guidance. The new EPS expectation ranges from $2.80 to $2.95, down from a previous estimate of $3.20 to $3.35.

Implications for WBA Stock

Walgreens’ stock has faced significant challenges this year, currently down 65%. To meet even the lower range of its EPS guidance, the company would need to report $0.44 in Q4. Achieving this target might positively affect the stock’s performance. Key indicators to monitor include the company’s profitability, retail sales trends, and guidance for fiscal 2025, which will all influence WBA’s stock movement in the near future.

We estimate Walgreens’ valuation to be $12 per share, based on a 4.4x forward expected adjusted earnings of $2.74, which is lower than the historical average P/E ratio of 9x over the last four years. The stock has dropped sharply this year, and improvements in profitability or other strategic initiatives will be essential for a rebound. With uncertainty ahead, it may be prudent to wait for Walgreens’ results before making investment decisions.

Notably, Walgreens’ stock performance has been inconsistent, showing more volatility than the S&P 500. In contrast, the Trefis High Quality (HQ) Portfolio, comprised of 30 carefully selected stocks, has consistently outperformed the S&P 500. HQ stocks have generated better returns with less risk, avoiding the dramatic fluctuations seen in WBA.

Despite WBA’s steep decline, it remains useful to analyze Walgreens’ Peers to gain insights into relevant industry metrics. For further comparisons, explore additional companies across sectors at Peer Comparisons.

Returns Oct 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 WBA Return -1% -64% -85%
 S&P 500 Return 0% 21% 157%
 Trefis Reinforced Value Portfolio 1% 16% 776%

[1] Returns as of 10/10/2024
[2] Cumulative total returns since the end of 2016

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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.

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