Walgreens Delivers an Earnings Beat Once Again



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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