Walgreens Boots Alliance (WBA) is the largest global pharmacy and wellness retailer by number of stores, with more than 18,000 stores in 11 countries. Yet despite key partnerships and a health care sector that’s squarely in focus due to the coronavirus pandemic, WBA stock has struggled amid declining earnings and flattening revenue.
Walgreens stock is underperforming the overall market and is in a prolonged downtrend. If you’re thinking about buying this Dow Jones component, it’s key to analyze the fundamental and technical picture first.
WBA Stock Earnings
Walgreens will report fiscal Q1 earnings before the market opens on Jan. 7, and analysts expect a 25.6% EPS drop to $1.02. Revenue is seen up 1.6% to $34.89 billion.
An estimate-beating quarterly report in mid-October provided a boost to WBA stock. Improving sales in the pharmacy retail division bolstered the drugstore chain’s results.
Walgreens’ overall revenue grew 2% for the quarter, hitting $34.7 billion. Adjusted earnings of $1.02 a share fell 29% from the same quarter a year ago. But those numbers were still better than analyst predictions for earnings of 96 cents a share on revenue of $34.38 billion.
Despite bottom-line weakness as of late, Walgreens expects profits to grow in the single digits in 2021.
“While we expect the first half (of 2021) to be impacted by continued COVID pressures, we expect strong growth in the second half of the year,” CEO Stefano Pessina said on the Oct. 15 earnings call.
As coronavirus shutdowns began back in March, the retail chain quickly pivoted to home delivery services for prescriptions and wellness products. Walgreens is leveraging partnerships with Postmates and Kroger (KR) to deliver these products, relying on state-of-the-art logistics to maintain the integrity of its global supply chain.
However, WBA stock faces headwinds from prolonged coronavirus shutdowns and cost management initiative. The outlook for the drugstore retail chain remains murky with the ongoing coronavirus pandemic.
The company in April withdrew its 2020 fiscal guidance for the year, citing the unique nature of the pandemic and its unknown effect on future growth.
Walgreens Stock News
Walgreens announced on July 27 that Stefano Pessina would step down from his role as CEO. He will vacate his position to become executive chairman once a replacement is found.
The announcement came as Walgreens stock struggles to find its footing amid the pandemic. Also, sales have been squeezed in U.S. and U.K. store locations as more customers have filled prescriptions online.
Additionally, the company announced in early July it was accelerating strategic investments. A multibillion-dollar Walgreens deal with VillageMD is expected to open up 500 to 700 doctor offices in U.S. stores by 2025.
The deal would make Walgreens the first national pharmacy chain to operate full-service medical offices on a large scale.
Walgreens is also one of a dozen U.S. pharmacy chains partnering with the federal government that will administer Covid-19 vaccines. The Centers for Disease Control announced the partnership on Oct. 30.
Meanwhile, Walgreens is also working on digital personalization initiatives. The company said it has over 3 million patients utilizing its online Walgreens Express prescription platform and over 62 million downloads of its mobile app.
Walgreens Stock Fundamental Analysis
To determine whether WBA stock is a buy now, fundamental and technical analysis are key.
The IBD Stock Checkup Tool shows that WBA stock has an IBD Composite Rating of 7 out of a best-possible 99. The rating means Walgreens stock ranks in the bottom 7% of all stocks. That’s in terms of the most important fundamental and technical stock-picking criteria.
The Composite Rating looks at earnings and sales growth, profit margins, return on equity and relative stock price performance, among other metrics.
WBA stock also has an EPS Rating of 46 out of 99. The EPS rating compares a stock’s quarterly and annual earnings-per-share growth with that of all other stocks.
The rankings place the drugstore retailer in the No. 4 slot against its drugstore retailing peers. CVS Health (CVS) currently holds the No. 1 ranking in IBD’s Retail-Drug Stores industry group.
But the group is currently ranked at No. 174 out of the 197 industry groups that IBD tracks. Investors should focus on top stocks in the top quartile of IBD’s groups.
WBA Stock Technical Analysis
Aside from a few brief periods, Walgreens’ relative strength line has been in a downtrend since the stock peaked back in 2015. It’s at its lowest level in 26 years.
The RS line compares a stock’s price action with that of the S&P 500, meaning WBA stock has underperformed the market for years.
From 1975 to its dot-com era highs in 2000, WBA stock notched significant returns. But between 2000 and 2015, Walgreens stock essentially only kept pace with the market.
Fast forward to today, and you’ll see the RS line for WBA stock had a short-term pop in mid-March as the market tried to find a bottom. But the struggles for Walgreens stock have accelerated in the face of the choppy retail climate due to the coronavirus pandemic. Underscoring the weakness, Walgreens is 45% below its 52-week high.
Additionally, the stock has an anemic Relative Strength Rating of 13. That means some 87% of stocks have outperformed WBA stock over the past year.
Walgreens stock has traded below its 200-day line for most of 2020. Growth stock investors should focus on stocks in strong uptrends that are trading above that key moving average.
WBA stock gapped down on earnings in July, hitting the lowest levels since 2012, but has since recovered some ground.
WBA Stock: Is It A Buy?
Walgreens has been in a downtrend since peaking in 2015 and is not forming a proper chart pattern. Its relative strength line continues to deteriorate.
The coronavirus pandemic is clouding the earnings outlook for WBA stock. Walgreens management pulled its full-year guidance in April as the impact of Covid-19 on retail operations remains uncertain.
Bottom line: WBA stock is not a buy right now for investors focused on top-performing growth stocks with strong fundamentals and technicals.
Follow Alexis Garcia on Twitter @IBD_Alexis for business news and more.
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