Walgreens Boots Alliance, Inc. (WBA - Get Rating) operates as a pharmacy-led health and beauty retailer. It operates through Retail Pharmacy USA, Retail Pharmacy International, and Pharmaceutical Wholesale.

In its efforts to focus on its domestic healthcare business, WBA had been looking to sell off its pharmacy chain Boots and consumer goods company No7 Beauty Co. However, the intended sale failed to materialize as WBA’s talks with Reliance Industries and Apollo Global Management Inc. consortium failed to meet its expected valuations.

The uncertain macroeconomic environment and surging inflation have made funding acquisitions difficult, as the central banks have been hiking interest rates. Having started in Nottingham in 1849, Boots will stay under WBA. WBA has said it will continue investing in Boots and the No7 brand, focusing on its growth and profitability.

Brokerage Evercore ISI in a note, said, “We see a potential future sale as still likely within the next few years if macro environment becomes more stable.” Despite having over 2,200 stores, Boots faces intense competition from online stores and other rivals.

In the last reported quarter, WBA surpassed the EPS and revenue estimates by 3.9% and 1.5%, respectively. WBA’s stock has declined 28.6% in price year-to-date and 21.3% over the past year to close the last trading session at $37.24. The stock is currently trading 32.3% below its 52-week high of $55, which it hit on January 11, 2022.

Here’s what could influence WBA’s performance in the upcoming months:

Disappointing Financials

WBA’s sales declined 4.2% year-over-year to $32.59 billion for the third quarter ended May 31, 2022. The company’s adjusted net earnings declined 36.4% year-over-year to $834 million.

Also, its adjusted EPS declined 36.4% year-over-year to $0.96. In addition, its operating loss came in at $320 million, compared to an operating income of $1.13 billion.

Unfavorable Analyst Estimates

Analysts expect WBA’s EPS is expected to remain negative in fiscal 2022 and 2023. Its revenue for fiscal 2022 is expected to decline 0.1% year-over-year to $132.37 billion.

Discounted Valuation

In terms of forward EV/S, WBA’s 0.54x is 70.6% lower than the 1.83x industry average. Its forward non-GAAP P/E of 7.53x is 57.6% lower than the 17.76x industry average. Also, the stock’s 13.76x forward EV/EBIT is 13.6% lower than the 15.92x industry average.

Mixed Profitability

In terms of trailing-12-month gross profit margin, WBA’s 21.83% is 34.3% lower than the 33.22% industry average. Its trailing-12-month net income margin of 4% is 24.2% lower than the 5.28% industry average.

Its 5.82% trailing-12-month levered FCF margin is 71% higher than the industry average of 3.40%. Furthermore, the stock’s 1.46% trailing-12-month asset turnover ratio is 78.6% higher than the industry average of 0.82%.

POWR Ratings Reflect Uncertainty

WBA has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. WBA has a C grade for Quality, in sync with its mixed profitability.

It has a D grade for Sentiment, consistent with unfavorable analyst estimates. WBA as a discounted valuation, justifying its B grade for Value.

WBA is ranked #3 out of 5 stocks in the B-rated Medical – Drug Stores industry. Click here to access WBA’s Growth, Momentum, and Stability ratings.

Bottom Line

WBA’s efforts to sell Boots and No7 Beauty Co. failed to materialize amid the rising macroeconomic uncertainty and interest rate hikes. Since these two businesses are not expected to be divested soon, WBA plans to invest in them to keep up with the rising competition.

However, given its disappointing financials and unfavorable analyst estimates, it could be wise to wait for a better entry point in the stock.

How Does Walgreens Boots Alliance, Inc. (WBA) Stack Up Against its Peers?

WBA has an overall POWR Rating of C, equating to a Buy rating. You might want to consider investing in the following Medical – Drug Stores stocks with an A (Strong Buy) rating: CVS Health Corporation (CVS - Get Rating).

WBA shares were trading at $36.73 per share on Thursday afternoon, down $0.51 (-1.37%). Year-to-date, WBA has declined -28.04%, versus a -20.63% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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