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Should You Buy Walgreens Boots (WBA) Ahead Of Earnings?

By Zacks Investment ResearchStock MarketsMar 26, 2018 10:57PM ET
Should You Buy Walgreens Boots (WBA) Ahead Of Earnings?
By Zacks Investment Research   |  Mar 26, 2018 10:57PM ET
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Walgreens Boots Alliance, Inc. (NASDAQ:WBA) has been gaining investor confidence on consistently positive results. The stock has lost 19.4% over a year, versus the broader industry’s 22.8% fall.

Ahead of its second-quarter fiscal 2018 earnings scheduled on Mar 28, we note that the company currently has a market cap of $69.68 billion. Its five-year historical growth rate is also favorable at 12.5% compared with the industry’s 4.3%.

Considering the solid prospects, this Zacks Rank #2 (Buy) stock is an attractive bet for investors at the moment.

The company’s estimate revision trend for the current year has been positive. In the last 60 days, three analysts revised their estimates upward, with no movement in the opposite direction. The estimate revision for earnings increased around 1.2% to $5.79 per share.

Per our Style Score, Walgreens Boots sports a Growth Score of B, which is reflective of the company’s solid prospects.

Our research shows that stocks with a Growth Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.

In this regard, Walgreens Boots has a favorable Net Margin (Net Income/Sales) of 3.2% compared with the industry’s 0.4%. Moreover, the projected sales growth rate of 9.4% surpassed the industry’s rate of 4.5%.

Factors in Favor

Let’s take a look at the possible growth propellers:

Solid Q1 Performance

Walgreens Boots exited the first quarter on a promising note with better-than-expected earnings and revenues. We are also encouraged by the uptick in sales at the Retail Pharmacy International segment. Moreover, Walgreens Boots has been gaining on strategic tie-ups, which brought more patients to its U.S. pharmacies.

Strong Retail Pharmacy USA Business

Over the recent past, we have observed Walgreens Boots’ Retail Pharmacy USA division witnessing comparable prescription growth and benefitting from strength in retail prescription market. Several planned developments, early benefits of new pharmacy contracts as well as an increase in volume owing to previously announced pharmacy partnerships have been driving growth in this space.

Moreover, rising expenditure on prescription drugs and growing demand for specialty drugs have been boosting the retail pharmacy market.

Express Scripts Deal Prospects Promising

We are encouraged by Walgreens Boots’ plans to expand its existing group purchasing efforts with Express Scripts Holding Company (NASDAQ:ESRX) to ensure availability of specialty brand drugs. Since biosimilars have the potential to lower production costs, the move is considered a prudent and timely one.

Guangzhou Pharmaceuticals Investment Strategic

We are upbeat about the company expanding its global footprint with its decision to acquire a 40% stake in Sinopharm Holding Guoda Drugstores Co., Ltd. (GuoDa), a subsidiary of China National Accord Medicines Corporation Ltd. On completion, this investment should provide a strong impetus to Walgreens Boots’ worldwide retail pharmacy business. Notably, Shanghai-based GuoDa is a large national pharmacy chain in China. It is the retail pharmacy platform of China National Pharmaceutical Group Corporation (“CNPGC”).

Moreover, the company’s acceptance of the proposal to sell part of its investment in its Chinese wholesale partner Guangzhou Pharmaceuticals Corporation for huge cash returns buoys optimism.

Other Key Picks

Other top-ranked stocks in the broader medical sector are Bio-Rad Laboratories (NYSE:BIO) and athenahealth, Inc. (NASDAQ:ATHN) .

Bio-Rad Laboratories sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here. The company has a long-term expected earnings growth rate of 20%.

athenahealth is a Zacks #1 Ranked player. The company has a long-term expected earnings growth rate of 21.5%.

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Should You Buy Walgreens Boots (WBA) Ahead Of Earnings?

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Should You Buy Walgreens Boots (WBA) Ahead Of Earnings?

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