Walgreens recently reported strong Q2’24 results, surpassing street expectations with revenue of $37.1 billion and adjusted earnings of $1.20 per share. However, the company narrowed its outlook due to a challenging retail environment and recorded a $5.8 billion impairment charge related to its VillageMD investment. This led to a 10% fall in WBA stock on April 1, sparking concerns among some Wall Street analysts who lowered their price targets for WBA.
Looking at a longer term perspective, WBA stock has seen a sharp decline of 50% since January 2021, with inconsistent returns of 31% in 2021, -28% in 2022, and -30% in 2023. Compared to the S&P 500, WBA underperformed in 2022 and 2023. The Trefis High Quality Portfolio, on the other hand, has consistently outperformed the S&P 500, indicating better returns with less risk.
Despite the uncertain macroeconomic environment, WBA stock may have room for growth, with a valuation of $24 per share based on a 7x forward expected adjusted earnings of $3.28. The company’s revenues were up 6% in Q2’24, primarily driven by its U.S. Healthcare business and the VillageMD acquisition. However, the operating margin took a hit, falling to -35.5% due to the impairment related to VillageMD.
While Walgreens posted positive Q2 results, it narrowed its full-year outlook and now expects earnings between $3.20 and $3.35 per share on an adjusted basis. The company cited a weakening consumer spending environment as a factor weighing on its bottom line in the near term. Despite these challenges, with the stock trading around $20, just 6x forward estimated earnings of $3.28 per share, much of the negatives may already be priced in for Walgreens.
In conclusion, WBA stock may have potential for growth despite recent setbacks, with room for improvement in its valuation and the possibility of a recovery. The company’s strong Q2 performance and strategic acquisitions show promise for the future, despite current challenges in the retail sector and macroeconomic environment. Investors may want to keep an eye on how Walgreens’ peers fare in comparison and consider Trefis Market Beating Portfolios for investment opportunities.
