- Walgreens was in the red when the pandemic-led recession started biting. But Covid-19 turned into a boon after the company rolled out testing and vaccination programs.
- The WBA stock is up 31.92% year-to-date, and there is room for more growth as the retail pharmacy chain expects front-store sales to rise 2% this year.
Walgreens Boots Alliance Inc. (NASDAQ: WBA) is a holding company with a range of businesses in the pharmaceutical industry. The companies in Walgreens’ orbit are pharmacy chains, manufacturers, wholesalers, and distributors of pharmaceuticals.
On December 31, 2014, the company came into being after the merger of business operations between Walgreens and Alliance Boots; the new company climbed to position 19 on the Fortune 500 merit list by 2020. It organizes its operations into three sectors/divisions: Pharmaceutical Wholesale, Retail Pharmacy USA, and Retail Pharmacy International.
Walgreens’ portfolio of business brands includes Ahumada, Duane Reade, Benavides, and Boots. The pharmacy services division is WBA’s largest segment, and it operates 9,021 retail stores in the US alone, according to August 31, 2020 records. In addition, the international segment of the pharmacy services division operated 4,428 retail stores in Mexico, the Netherlands, Chile, the United Kingdom, Norway, Thailand, and the Republic of Ireland.
Walgreens off the hook in New York’s legal trial
On Tuesday, June 27, 2021, the attorneys for New York outlined their case against seven defendants from the pharmaceutical industry. New York State accuses the defendants of pushing opioid pills for-profit “while disregarding the human toll of addiction.”
The list of defendants includes drugmakers and distributors and their subsidiaries and attorneys. Interestingly, the sheer number of the indicted was so huge that the court convened inside a Central Islip law school auditorium.
The legal trial is a culmination of the lawsuit that New York’s attorney general, Letitia James, filed against specific players in the opioid supply chain. This is in response to an opioid crisis that killed 70,630 people by overdose in 2019 alone.
Walgreens was one of the four pharmacy chains indicted in the case. However, Walgreens and CVS, Rite Aid, and Walmart were deleted from the defendants’ list before the trial started. Given the severe nature of the case, it comes as a massive win for Walgreens to come off the hook.
How is the exclusion from the case important to the WBA stock? For context, the weeks leading to the trial were challenging for the stock. In the week between June 11 and June 18, 2021, the Walgreens stock fell 8.1% – the largest one-week decline year-to-date. This was the week before the New York state attorney general’s office announced the decision to drop Walgreens from the lawsuit.
From the preceding, it is clear that the WBA stock would have suffered massive losses this week. However, is the acquittal sufficient to warrant investor interest in the WBA equity? The best way to answer this question is to dive deeper into the company’s fundamentals. Read on to find out.
What do Walgreens’ fundamentals tell us?
The health crisis that befell the world in early 2020 threatened to ground drug stores across the nation. As more shoppers stayed home, pharmaceutical chains such as Walgreens lost revenue.
Fortunately, Walgreens quickly realized that setting up testing and vaccination facilities at their stores would return traffic. Now, the company is reporting that revenue is climbing back up as consumers spend money in the stores while seeking vaccines.
The changing fortunes enabled Walgreens to exceed expectations in the Q2 FY2021 results announced on March 31. WBA reported an EPS of $1.19, 10.9% higher than in the year-ago quarter. Also, the result was a resounding beat against the expected $1.10.
Walgreens’ sales in the quarter climbed 4.6% to $32.8 billion, most of it coming from over 8 million Covid-19 vaccines administered. The company administered 4 million vaccines in March alone.
Given the strong performance, the company raised the FY2021 guidance to mid-to-high single-digit growth. Walgreens is also banking on the Alliance Healthcare divestiture to boost growth. The company sold Alliance Healthcare to AmerisourceBergen for up to $6.5 billion. Walgreens intends to use the sale proceeds to pay down debt and invest in growth programs in its core businesses.
However, the most significant indicator that Walgreens’ financial position is better than ever is the company’s intention to purchase outstanding debt securities worth $2.75 billion.
The company detailed in a Tender Offer that the “Payment for Notes purchased will include accrued and unpaid interest from and including the last interest payment date applicable to the relevant series of Notes up to, but not including, the applicable settlement date for such Notes accepted for purchase.”
WBA share performance is even stronger
The WBA stock is up 31.92% year-to-date and 25.32% over the past 12 months. Also, the share performance for the last six months beats the industry by almost 6% – the WBA stock gained 29.5% against a 23.6% rise for the industry.
Figure 1: WBA 4-hour price chart
Figure 1 paints a clear picture of the damage done to the stock’s market sentiment on WBA’s inclusion in the New York state’s lawsuit. However, the market seems to be warming up to the stock once more.
In the chart, the price action broke above the 0.236 Auto Fib Retracement level in less than a week after bottoming out on June 18. Now, level 0.382 is the new support level, at $52.65 per share.
However, the market seems without direction if the Auto Fib Retracement is the sole indicator. But adding the MACD makes things more straightforward. There was a crossover on June 25, and the buying pressure has been building up relentlessly ever since.
WBA is in the best position to achieve its most robust performance in history. Specifically, the company’s name is now clean after being axed from the New York state’s lawsuit. Also, the sterling revenue performance during the second year of the health crisis inspires hope that the company might beat estimates in Q3 FY2021.
Furthermore, WBA’s price action shows enough strength to break out of a three-month-long rut, where the stock is not seeing significant growth. As such, we believe WBA is a strong BUY.