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Will Walgreens' (WBA) Q2 Earnings Gain From Overall Growth?

By Zacks Investment ResearchStock MarketsMar 25, 2018 09:40PM ET
Will Walgreens' (WBA) Q2 Earnings Gain From Overall Growth?
By Zacks Investment Research   |  Mar 25, 2018 09:40PM ET
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Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is slated to release second-quarter fiscal 2018 results before the market opens on Mar 28.

Last quarter, the company had delivered a positive earnings surprise of 0.79%. It is noteworthy that Walgreens Boots has outperformed the Zacks Consensus Estimate in three of the preceding four quarters with an average positive earnings surprise of 2.43%. Let’s take a look at how things are shaping up prior to this announcement.

Key Catalysts

Over the recent past, we have observed Walgreens Boots’ Retail Pharmacy USA division to witness comparable prescription growth and benefit 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 over the past few quarters. Moreover, rising expenditure on prescription drugs and growing demand for specialty drugs have been strengthening the retail pharmacy market.

Meanwhile, during first-quarter fiscal 2018, the company exceeded 1 billion scripts on a 30-day adjusted and rolling annual basis for the first time, touching a new milestone.

Furthermore, the company’s efforts to boost its digital capabilities have started paying off. In this regard, more than 20% of the company’s retail refill scripts were initiated through digital channels with the Walgreens' mobile app, having been downloaded in excess of 50 million times since the launch.

We are also encouraged by the increase in sales at the Retail Pharmacy International segment. Furthermore, the company has been gaining on account of the company’s strategic tie-ups, which brought more patients to its U.S. pharmacies.

Walgreens Boots Alliance, Inc. Price and EPS Surprise

Meanwhile, strong market growth in certain emerging markets drove the company’s Pharmaceutical Wholesale division’s solid performance in the first-quarter fiscal 2018. We expect these trends to get reflected in fiscal second-quarter 2018 results, as well.

The Zacks Consensus Estimate for total revenues of $31.99 billion reflects an 8.6% rise on a year-over-year basis.

Also, we are upbeat about the company expanding its global footprint with its decision to acquire 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.

We are also upbeat about 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 to be a prudent and timely one.

On the flip side, Walgreens Boots’ gross margin figures continued to contract in the last reported quarter as well. Lower pharmacy margins in the U.K., reflecting the reduction in funding, led to the downside. However, the company is working tirelessly to increase efficiency and provide high quality and cost-effective pharmacy services, in order to reduce overall pharmacy cost.

Here is what our quantitative model predicts:

Walgreens Boots has the right combination of two main ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — needed for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Walgreens Boots is +2.46%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Walgreens Boots carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for earnings of $1.55 reflects a 13.9% rise on a year-over-year basis.

Other Stocks Worth a Look

Here are a few other medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Edwards Lifesciences Corporation (NYSE:EW) has an Earnings ESP of +0.07% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Align Technology, Inc. (NASDAQ:ALGN) has an Earnings ESP of +1.99% and a Zacks Rank #3.

Henry Schein (NASDAQ:HSIC) has an Earnings ESP of +2.35% and a Zacks Rank #3.

5 Medical Stocks to Buy Now

Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.

New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.

Click here to see the 5 stocks >>

Edwards Lifesciences Corporation (EW): Free Stock Analysis Report

Align Technology, Inc. (ALGN): Free Stock Analysis Report

Henry Schein, Inc. (HSIC): Free Stock Analysis Report

Walgreens Boots Alliance, Inc. (WBA): Free Stock Analysis Report

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Zacks Investment Research
Will Walgreens' (WBA) Q2 Earnings Gain From Overall Growth?

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Will Walgreens' (WBA) Q2 Earnings Gain From Overall Growth?

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