Credit: Shutterstock photoWalgreens Boots Alliance, Inc.WBA is slated to report its first-quarter fiscal 2016 earnings on Jan 7, before the opening bell.
Last quarter, the company delivered a positive earnings surprise of 8.64%. Impressively, Walgreens Boots' earnings have outpaced the Zacks Consensus Estimate in all of the past four quarters, with an average beat of 15.22%. Let's see how things are shaping up prior to this announcement.
Factors at Play
Within just a year of the strategic combination of the legacy Walgreens Co. and Boots Alliance, Walgreens Boots has emerged as a new global leader in the pharmacy-led, health and wellbeing retail space. So far, the legacy Walgreens' partnership with Alliance Boots has yielded positive results, with combined synergies totalling $799 million in fiscal 2015, significantly higher than the company's target of at least $650 million.
Currently, management is focused on improving its operational performance across all segments, reinvesting in the stores of the Retail Pharmacy USA division to enhance the customer experience, expanding retail margins as well as restructuring of the cost base. As Walgreens Boots strides on the synergy track, the company continues to expect to exceed the combined synergy goal of $1 billion by the end of fiscal 2016. The plan focuses on improving core performance in the near term as well.
Moreover, in the second quarter of fiscal 2015, Walgreens Boots had implemented a new restructuring initiative for cost reduction and enhancement of operational efficiencies. This initiative resulted in an increment of $500 million to the projected cost savings initiative worth $1 billion previously adopted by the legacy Walgreens.
To execute this program, management has decided to shut down 200 stores across the U.S. by 2017, of which 75 have been closed in the fourth quarter of fiscal 2015, in line with the company's target closure of 70-80 stores.
Further, the company currently expects to earn adjusted EPS in the $4.25-$4.55 range for fiscal 2016, narrower than the earlier guided range of $4.25-$4.60. The narrower projection reflects the impact of suspending the company's share buyback program, in a bid to apply these funds toward the consideration for the Rite Aid transaction.
Analysts are also optimistic about the company's impending acquisition of retail pharmacy chain - Rite Aid, expected to close in the second half of calendar year 2016. Impressively encouraging integration synergy expected from this deal, has so far motivated the market sentiment in a significant way.
On the flip side, Walgreens Boots continues to face tough challenges from other retail giants and/or from the government's relentless drive to manage healthcare costs. Moreover, the company's biggest business in the U.K. - Boots has been facing a challenging retail environment particularly in the supermarket sector and management does not foresee much opportunity for new store openings therein.
Earnings Whispers
Our proven model does not conclusively show that Walgreens Boots is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Walgreens Boots has an ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 97 cents.
Zacks Rank: Walgreens Boots has a Zacks Rank #3 which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Curis, Inc. CRIS , earnings ESP of +8.33% and a Zacks Rank #2.
Fate Therapeutics, Inc. FATE , earnings ESP of +3.85% and a Zacks Rank #2.
IDEXX Laboratories, Inc. IDXX , earnings ESP of +6.82% and a Zacks Rank #2.
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WALGREENS BAI (WBA): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
