Back in July, we had a terrific head-to-head look at two operations that should be on a tear in the market: Walgreens (NASDAQ:WBA) and CVS (NYSE:CVS). The head-to-head back then came out in favor of Walgreens, and the latest bit of news on Walgreens' quarterly figures suggests that such an appraisal was dead-on accurate.
Some Solid Turnaround Numbers in Progress
The numbers, by and large, were quite sound. Adjusted quarterly profit for the quarter came in at $1.02 per share, which was at least somewhat above the estimates of $0.96 per share. The company brought in a grand total of $373 million in its fiscal fourth quarter, which is a huge turnaround from the $1.7 billion lost in the preceding quarter. Given how many customers were staying at home—even from drugstores—such losses were probably to be expected. Total revenue was also up 2%, going to $34.75 billion. Analysts were looking for the company to generate $34.37 billion in revenue, based on a FactSet study, which is better news than some may have expected.
The company closed out its 2020 fiscal year—quite possibly with a sigh of relief given the circumstances—by bringing in full-year adjusted earnings per share (EPS) figures of $4.74. This was slightly under analyst projections of $4.80 per share, but still a decent showing.
Despite the losses incurred in the company's third-quarter, the latest quarter saw clear signs of turnaround in play. The company's US stores saw growth in general sales and in prescriptions being filled, and even its UK locations saw recovery start to kick in even amid talk of “second waves” and “more lockdown.”
A Brighter Future to Come?
Walgreens expects its sales will likely continue to take some hits going into 2021. In fact, it looks for those hits to keep coming through the first half of 2021, projecting low single-digit earnings percentages for next year in terms of share growth.
The analysts, meanwhile, are a little less sure about the company's likely outcome. In fact, the outlook recently just got a little worse for Walgreens; last month, the company had 14 “hold” ratings and one “sell” rating. Our latest research, meanwhile, steps that figure up to a second “sell” rating, with 14 still at “hold.” Moreover, analysts have been dialing down price recommendations for the last six months; 180 days ago, the company had a consensus price target of $52.07. Currently, that target is down to $43.47. While that still represents a fairly substantial upside, it's hard to ignore a continually-declining price target.
The company's CEO, Stefano Pessina, offered a statement that matches what we've seen so far. Coronavirus certainly delivered a hit to the company's fortunes, but recovery has been in play, and there are certainly bright spots. One point Pessina noted that hadn't emerged prior was that the company's e-commerce operations proved to be a bright spot as well, with “accelerating growth” seen therein. The company's Boots.com operation saw its sales increase 155%, reports noted, while Walgreens.com sales were up 39%.
A Solid Prospect, With Some Risk
Granted, the coronavirus—or rather, the response of governments to same—is going to weigh on Walgreens' outlook for some time to come. It's going to do that all over, but there are certainly bright spots here. Retail pharmacy sales in the US are up over last year, gaining 3.6% against last year to post $27 billion total so far. With international pharmacy sales down 15%, however, it's clear that there will be drags on the market as well.
\Walgreens is in good shape here; it's showing signs of recovery, and it's made the pivot rather nicely to web-based operations that likely won't be shut down regardless of how far governments go with further lockdowns. Throw in Walgreens' expansion operations and there's a good potential for gain here. The clinic options that some Walgreens locations are adding is a stroke of genius, and though they'll find themselves competing with fairly big names like Walmart (NYSE:WMT), they'll likely have a little extra authenticity working for them. Getting a wart checked out in the same place you buy medicine will likely have a more natural feel than doing so in the same place you buy baked goods and deli meat.
All told, the original projections we released should still stand, and Walgreens should make a worthwhile addition to any reasonably diversified portfolio.
Companies in This Article:
