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Walgreens Delivers an Earnings Beat Once Again

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Series snapshot

Walgreens Boots Alliance (WBA) reported its fiscal 4Q16 and full fiscal 2016 results on Thursday, October 20, 2016. The results relate to the three-month period ending August 31, 2016. In 4Q16, the company reported an impressive 21.6% YoY (year-over-year) jump in its earnings per share (or EPS), beating Wall Street estimates for the eighth consecutive quarter. The company generated earnings of $1.07 per share, $0.8 better than Wall Street estimates.

However, as in all the previous quarters of 2016, Walgreens missed the consensus revenue forecasts. Revenue rose 0.4% to $28.6 billion, missing the average analyst estimate of $29 billion.

In this series, we’ll discuss the reasons behind the earnings beat despite the revenue miss, the company’s key performance drivers in 4Q16 and fiscal 2016, its year-to-date stock market performance, its dividend policy, its current valuations, and Wall Street recommendations.

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Stock market reaction to 4Q16 results

Walgreens’s earnings beat was well received by the market. The company’s stock price jumped 5% after the earnings release on October 20, 2016.

Valuations summary

Walgreens is currently trading at a one-year earnings multiple of 16.2x, operating in the middle of its 52-week price to earnings (or PE) range of 14.5x to 18.6x. In comparison, CVS Health (CVS), AmerisourceBergen (ABC), and McKesson (MCK) are trading at 14x, 14.2x, and 11.9x to next-12-month earnings.

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Fiscal 2017 guidance

The company issued its fiscal 2017 earnings guidance during its fourth quarter conference call. The company expects its EPS to lie in the $4.85 to $5.20 per share range in fiscal 2017. This indicates an increase of 5.7% to 13.3% in earnings during the next fiscal year.

ETF exposure

With a market capitalization of $88.4 billion as of October 20, 2016, Walgreens Boots Alliance has a weight of 1.6% in the PowerShares QQQ Trust (QQQ) and 3.9% in the SPDR Consumer Staples Select Sector ETF (XLP).

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