Walgreens Boots Alliance-Assessing WBA Before Q4 Earnings: How Should You Play the Stock?

Core Viewpoint - Walgreens Boots Alliance (WBA) is expected to report a significant decline in earnings for the fourth quarter of fiscal 2024, with a consensus estimate of 36 cents per share, reflecting a 46.3% decrease from the previous year, while revenues are projected to increase slightly by 1.1% to $35.8 billion [2][6]. Financial Performance - The earnings estimate for the fourth quarter has remained stable at 36 cents per share over the past 30 days, indicating a significant drop from the prior year's earnings [2]. - Walgreens has missed earnings estimates twice in the last four quarters, with an average surprise of 10.9% [3][4]. - The company has an Earnings ESP of +10.92%, but currently holds a Zacks Rank of 4 (Sell) [5]. Market Challenges - The company faces macroeconomic challenges, including labor shortages and supply chain disruptions, which have negatively impacted its performance [6]. - Ongoing inflation and reduced household savings have led to a difficult consumer environment, affecting retail sales, which are expected to decline by 0.6% in the upcoming quarter [6]. - Regulatory and reimbursement pressures in the pharmacy industry may have adversely affected pricing dynamics and profitability [7]. Segment Performance - The U.S. Healthcare segment is projected to see a revenue increase of 6.5% year-over-year, driven by Shields Health Solutions [8]. - The International division, particularly Boots U.K., is expected to show a 2% revenue improvement due to strong performance in both physical and digital channels [8]. Cost Management and Strategy - The company anticipates achieving$ 1 billion in cost savings through its Transformational Cost Management Program, with improvements in cash flow generation [9]. - Walgreens is undergoing a strategic review, planning to close nearly 25% of its underperforming U.S. Retail Pharmacy stores over the next three years [13]. - The company is also evaluating options for its majority stake in VillageMD, which may indicate a shift in strategy regarding value-based primary care [14]. Stock Performance - Walgreens shares have declined by 60.9% over the past year, significantly underperforming the industry and the S&P 500 [10]. - The stock is currently trading at a forward P/E ratio of 4.92X, lower than the industry average of 8.30X [12]. Future Outlook - The company is focusing on building an asset-light health services strategy and enhancing its digital offerings to better serve customers [15]. - Despite promising long-term initiatives, immediate operational challenges may hinder strong performance in the final quarter of fiscal 2024 [16].