Walgreens Boots Alliance Inc

Walgreens Boots Alliance, Inc. (NASDAQ: WBA) is an integrated healthcare, pharmacy and retailing company. Its segments include U.S. Retail Pharmacy, International, and U.S. Healthcare.

Key Business & Financial Updates

• Third Quarter Financial Performance: Walgreens Boots Alliance, Inc. (WBA) reported earnings per share (EPS) of USD 0.40 for the third quarter of fiscal 2024, marking a substantial increase from the USD 0.14 reported in the same period of the previous year. The prior year’s EPS was negatively impacted by a non-cash impairment related to pharmacy license intangible assets in Boots UK. However, adjusted EPS for the third quarter experienced a decline of 36.6% on a constant currency basis, falling to USD 0.63. This reduction is attributable to lower sale-leaseback gains, challenges in the U.S. retail environment, and recent trends in the pharmacy industry. Despite these difficulties, third-quarter sales increased by 2.6% year-over-year, reaching USD 36.4 billion.
• Fiscal 2024 Guidance Revision: WBA has revised its adjusted EPS guidance for fiscal 2024 to a range of USD 2.80 to USD 2.95. This adjustment reflects ongoing challenges within the pharmacy industry and a weaker-than-expected U.S. consumer environment. These factors are expected to continue impacting the company’s financial performance throughout the remainder of the fiscal year.
• Strategic Review Update: The company is finalizing a significant multiyear footprint optimization program, which aims to close underperforming stores in the U.S. In addition, WBA is launching a comprehensive U.S. Retail Pharmacy action plan. This initiative focuses on enhancing the customer and patient experience across multiple channels. Furthermore, WBA is aligning its U.S. Pharmacy and Healthcare organizations to improve market capabilities, while streamlining and concentrating its U.S. Healthcare portfolio.
• Detailed Third Quarter Results: During the third quarter, WBA recorded a 2.6% increase in sales from the previous year, reaching USD 36.4 billion. The company also reported operating income of USD 111 million, a notable improvement from the operating loss of USD 477 million in the prior year. This improvement was driven by the absence of a USD 431 million non-cash impairment related to pharmacy license intangible assets in Boots UK, which had negatively impacted last year’s results. However, adjusted operating income declined by 36.3% on a constant currency basis, totaling USD 613 million, largely due to lower sale-leaseback gains and weaker U.S. retail and pharmacy performance, partially offset by cost-saving initiatives and improved profitability in the U.S. Healthcare segment.
• Earnings and Cash Flow Performance:
  • Net earnings for the third quarter amounted to USD 344 million, an increase of USD 225 million compared to the same period in the previous year, driven by higher operating income. However, adjusted net earnings decreased by 36.5% on a constant currency basis, totaling USD 545 million. EPS rose to USD 0.40 from USD 0.14 in the prior year, while adjusted EPS fell by 36.6% to USD 0.63.
  • Net cash provided by operating activities reached USD 605 million in the third quarter, while free cash flow increased by USD 778 million to USD 334 million, primarily due to the optimization of working capital and lower capital expenditures.
• Year-to-Date Fiscal 2024 Performance: For the first nine months of fiscal 2024, WBA reported a 6.2% increase in sales, totaling USD 110.1 billion, reflecting growth across all segments. The company’s operating loss for this period increased to USD 13.1 billion from USD 6.4 billion in the previous year. This rise in losses was driven by a USD 12.4 billion non-cash impairment charge related to VillageMD goodwill, resulting in a USD 5.8 billion charge attributable to WBA. The current period also included a USD 455 million non-cash impairment charge related to long-lived assets in the U.S. Retail Pharmacy segment. In comparison, the prior year's results were impacted by a USD 6.8 billion pre-tax charge for opioid-related claims and litigation, as well as a USD 431 million impairment in Boots UK.
• Net Loss and Cash Flow Overview:
  • Net loss for the first nine months of fiscal 2024 was USD 5.6 billion, an increase of USD 2.7 billion compared to the USD 2.9 billion loss reported in the prior year. This increase was primarily due to non-cash impairment charges and the absence of a USD 1.5 billion gain from the sale of shares in Cencora and Option Care Health in the previous year. Adjusted net earnings for the period decreased by 24.9% to USD 2.2 billion, reflecting a decline of 25.3% on a constant currency basis.
  • The company reported a loss per share of USD 6.53 for the first nine months, compared to USD 3.36 in the previous year. Adjusted EPS decreased by 24.9%, falling to USD 2.49. Net cash used in operating activities was USD 314 million, while free cash flow was negative USD 1.1 billion, a USD 1.2 billion decrease compared to the prior year. This decline was driven by lower earnings, higher payments related to legal matters, and changes in working capital, partially offset by reduced capital expenditures.

Technical Observation (on the daily chart):

The Relative Strength Index (RSI) over a 14-day period stands at a value of 33.83, near oversold zone, with the expectations of bullish divergence with expectations of upward momentum if the current important support levels of USD 10 holds. Additionally, the stock's current positioning is below both 50-Day SMA and 200-Day SMA, which can act as a short to medium term resistance levels.

As per the above-mentioned price action, momentum in the stock over the last month, current macroeconomic scenarios, recent business & financial updates, and technical indicators analysis, a ‘Buy’ rating has been given to Walgreens Boots Alliance, Inc. (NASDAQ: WBA) at the current market price of USD 10.13 as of August 22, 2024, at 09:15 am PDT. 

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario. 

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is August 22, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.s

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the New York Stock Exchange (NYSE), NASDAQ Capital Markets (NASDAQ), and or REFINITIV. Typically, all sources (NYSE, NASDAQ, or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.