What To Expect From Walgreens’ Q2?

Walgreens Boots Alliance (NASDAQ: WBA) is scheduled to report its fiscal Q2 2023 results on Tuesday, March 28. We expect the company to post revenue and earnings slightly below the street expectations, partly due to fewer Covid-19 vaccine administrations vs. the prior year quarter. That said, the company expects strong growth for its international business in Q2. Although we expect the company to post a downbeat Q2, we believe its stock has more room for growth, as discussed below. Our interactive dashboard analysis on Walgreens Earnings Preview has additional details.

(1) Revenues expected to be below the consensus estimates

• Trefis estimates Walgreens’ Q2 2023 revenues to be around $33.2 billion, slightly below the $33.4 billion consensus estimate. This compares with the $33.8 billion revenue the company garnered in the prior-year quarter.
• The company should benefit from growth in the international segment, primarily led by a strong Christmas season for Boots in the UK.
• The administration of Covid-19 vaccinations is expected to be lower in Q2, likely resulting in a revenue decline for the quarter.
• Looking at Q1, Walgreens reported a 1.5% y-o-y decline in revenue to $33.4 billion, with its international segment sales falling 10.8% and retail pharmacy sales down 3.0%, while healthcare revenue stood at $989 million, vs. just $51 million in the prior year quarter.
• Our dashboard on Walgreens Revenue offers more details on the company’s revenue and segments.

(2) EPS also likely to be marginally below the consensus estimates

• Walgreens’ Q2 2023 adjusted earnings per share (EPS) is expected to be $1.09 per Trefis analysis, just a cent below the consensus estimate of $1.10.
• Walgreens’ adjusted net income of $1.0 billion in Q1 2023 reflected a 31% fall from its $1.5 billion figure in the prior-year quarter. This can be attributed to lower revenues and around 220 basis points contraction of the adjusted operating margin.
• For the full-fiscal 2023, we expect the adjusted EPS to be lower at $4.48, compared to the $5.04 in fiscal 2022.

(3) WBA stock has more room for growth

• We estimate Walgreens’ Valuation to be $43 per share, 29% above the current market price of $34.
• At its current level, WBA is trading at 7.6x its expected forward EPS of $4.48. This compares with the last three-year average of 8.7x, implying that the stock has more room for growth.
• That said, if the company reports upbeat Q2 results and provides an outlook better than the street estimates, the P/E multiple will likely be revised upward, resulting in even higher levels for WBA stock.