Walgreens recently reported its Q3’24 results, with revenue exceeding expectations but earnings falling short. The company reported revenue of $36.4 billion and adjusted earnings of $0.63 per share, compared to estimates of $36 billion and $0.75, respectively. This led to a 20% drop in WBA stock in early trading on June 27. The stock has seen a decline of 70% since early 2021, underperforming the S&P 500 over the same period.
In the uncertain macroeconomic environment, with high oil prices and elevated interest rates, the question arises whether Walgreens will continue to underperform or see a recovery. From a valuation perspective, there is room for growth as the estimated valuation is $17 per share based on forward expected earnings of $2.89. However, the current stock price of $12 implies a low valuation multiple of just 4x forward earnings.
Walgreens’ revenues were up 2.6% in Q3’24, driven by its U.S. Healthcare business, which rose 8% due to acquisitions. U.S. Retail Pharmacy revenue increased by 2% and International revenue by 3%, primarily due to increased prescription volume and drug price inflation. However, the operating margin decreased to 1.4% from 2.4% in the prior year, and earnings per share dropped 37% to $0.63.
The company lowered its full-year outlook, expecting adjusted earnings per share between $2.80 and $2.95, down from prior guidance of $3.20 to $3.35. Walgreens management cited a weakening consumer spending environment as a factor that will impact its bottom line in the second half of the fiscal year. Despite this, analysts believe that most of the negatives are already priced into Walgreens’ stock at its current trading level.
While there is potential for WBA stock to increase, it is important to compare Walgreens with its industry peers to gain a better understanding of its performance and prospects. peer comparisons can provide valuable insights into how Walgreens stacks up against other companies in the sector. Overall, the company’s recent performance, outlook, and valuation indicate both challenges and opportunities for Walgreens in the upcoming months.
