Shares of Walgreens Boots Alliance (WBA) are relatively flat this morning after the company reported second-quarter earnings that have analysts and investors alike concerned about profits and the long-term viability of the company’s business model.
Last quarter, we wrote about Walgreens cutting their quarterly dividend and the fallout that ensued – including removal from the Dow Jones Industrial Average. But the company performed well in the first quarter, delivering solid revenue and profits. This quarter, though, the retailer’s challenges resulted in a miss on the bottom line.
Adjusted operating income for the US retail pharmacy division came in at $752 million compared to the $771 million analysts were expecting. This represented a nearly 30% dip year over year. This was coupled with an operating loss of $13.2 billion compared to the operating income of $197 million reported this time last year.
While adjusted earnings of $1.20 per share and sales of $37.1 billion did come in above the FactSet consensus of 82 cents and $35.9 billion respectively, there is clearly an issue with the company’s profitability.
In fact, it’s an issue that will affect the entire outlook for the year as the retailer reassessed its full-year earnings – narrowing from a high end of $3.50 to just $3.35. The low end of its range remained unchanged at $3.20.
New CEO Tim Wentworth spoke to the challenges Walgreens has been up against, saying that he is in the midst of a strategic review of the entire portfolio.
It will take between 3-6 months to come up with answers, but he did say that customer engagement and value remain a focus. Wentworth also said that physical retail storefronts will remain an integral part of the business.
In the meantime, what should investors do with this stock? WBA has fallen more than 20% over the past few months, and it’s hard to see any light at the end of the tunnel. So, we’ve taken to the VectorVest stocks software to find out whether you should buy, sell, or hold onto WBA as of now. Here’s what we found…
WBA Has Fair Upside Potential With Poor Safety and Timing, But It's Not Time to Sell This Stock Yet
VectorVest simplifies your trading strategy by giving you clear, actionable insights in just 3 ratings - relative value (RV), relative safety (RS), and relative timing (RT). You can rely on these intuitive proprietary ratings to win more trades with less work.
Each sits on its own scale of 0.00-2.00 with 1.00 being the average, making interpretation quick and easy. Better yet, you’re given a clear buy, sell, or hold recommendation for any given stock at any given time based on its overall VST rating. Here’s what we’ve uncovered for WBA:
- Fair Upside Potential: The RV rating compares a stock’s long-term price appreciation potential (based on a 3-year price projection), AAA corporate bond rates, and risk. It’s a much better
- indicator than the typical comparison of price to value alone. WBA has a fair RV rating of 0.92. The stock appears to be fully valued at its current price.
- Poor Safety: The RS rating is a risk indicator. It’s derived from an analysis of the company’s financial consistency & predictability, debt-to-equity ratio, business longevity, sales volume, price volatility, and other factors. As for WBA, the stock has a poor RS rating of 0.75.
- Poor Timing: The RT rating is based on the direction, dynamics, and magnitude of the stock’s price movement. It’s calculated day over day, week over week, quarter over quarter, and year over year. WBA has a poor RT rating of 0.70, reflecting the weak performance it has shown over the past few months.
The overall VST rating of 0.79 is poor, but WBA is still rated a HOLD for the time being. You’re going to want to learn more about this situation if you’re currently invested in this stock, though. Get a free stock analysis today and transform the way you trade for the better!
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VectorVest advocates buying safe, undervalued stocks, rising in price. WBA has been struggling for the past few quarters, cutting its dividend last quarter and missing on profit expectations this quarter. It narrowed its earnings guidance for the full year as a result. The stock itself has fair upside potential, but poor safety and timing holding it back.
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