Walgreens Boots Alliance, Inc. (NASDAQ: WBA) has been busy enhancing its capabilities in healthcare delivery lately, through various initiatives including M&A deals. After being hit by the pandemic-related disruption initially, customer traffic recovered as people flocked to Walgreens stores for coronavirus tests and vaccination. The high demand for COVID-related items, including booster dose and at-home test kits, resulted in a record increase in same-store sales.
The Stock
After slipping to multi-year lows, Walgreens’ stock made steady gains early last year though the momentum waned in the second half. Extending the downturn, the stock mostly traded below the $50-mark this year. Market watchers, in general, are bullish on the stock, which is expected to gain about 15% in the 12-month period, from the last closing price.
Read management/analysts’ comments on Walgreeens’ Q1 2022 earnings
However, it is advisable to wait until the upcoming earnings release before investing. Walgreens has hiked the dividend regularly over the years. It currently offers a yield of 4.2%, which is much higher than the S&P 500 average. Considering the company’s promising long-term prospects and favorable valuation, WBA is an ideal option for income investors.
From Walgreen’s Q4 2021 earnings call transcript:
“Looking ahead of 2022, considering the macro uncertainties, we will continue to take prudent operating strategy as always. From what we have learned from past success, we believe that holding a prudent and steady approach in daily operation is the golden standard for the fintech business when macro uncertainties arise. After all the rectification in 2021, we expect to see a much clearer regulatory framework for the fintech industry in 2022, which should allow industry participants to be more focused on long-term business development.”
Financial Perforamnce
Interestingly, Walgreen reported stronger-than-expected earnings and revenues since the onset of the virus crisis. It started the new fiscal year on an upbeat note, reporting a 53% growth in adjusted earnings for the first quarter. The highlight of the quarter was a 36% growth in the international business, which far outperformed the core domestic segment.
Retail comparable store sales increased in double digits. At $34 billion, total revenues were up 8% year-over-year. The key numbers also surpassed the market’s projections. Buoyed by the positive momentum, the management raised its full-year 2022 earnings outlook. When the company reports second-quarter results on March 31 before the opening bell, the market will be looking for a 10% increase in earnings to $1.38 per share, on revenues of $33.4 billion.
Beyond COVID
Meanwhile, there are concerns that sales would slow down once the COVID situation improves further and normalcy returns. A pullback in customer traffic would weaken comparable store sales, which does not bode well for the company’s stakeholders.
Costco bets on strong customer loyalty to beat COVID blues
In October last year, the company raised its stake in healthcare management services provider VillageMD to 63% by investing $5.2 billion. The deal will allow it to open Village Medicals units at Walgreens stores. In a similar deal, it acquired a majority stake in health management company CareCentrix
Over the past twelve months, Walgreens’ stock lost about 9%, and traded below its 52-week average on Tuesday. The stock traded slightly lower in the afternoon.
