A Walgreens Analyst's Takeaways From Q3 Earnings

Walgreens Boots Alliance Inc (NASDAQ: WBA) on Thursday reported fiscal third-quarter results, which prompted Wells Fargo to reaffirm a bullish stance.

The Analyst

Wells Fargo's Peter Costa maintains an Outperform rating on Walgreens with a $65 price target.

The Thesis

Walgreens reported an EPS beat at $1.47 versus Wells Fargo's estimate of $1.38. Costa said the beat can be attributed to strong performance in the U.S. Retail Pharmacy business where pharmacy sales accelerated from 1.9% in the prior quarter to 6%, while retail sales improved sequentially from down 3.8% to down 1.1%. To a smaller extent, the Pharmacy Wholesale business also contributed to the earnings beat.

Costa said the company benefited from two separate one-time events in the quarter, including the timing of payer contracts and from the acceleration of real estate savings. The original timing of these events was expected to come in the fiscal fourth quarter, which creates a difficult year-over-year comparison.

The company also ramped up investments in store labor and digital/development expenses in the quarter. Management discussed on the conference call some of its strategic initiatives, including key partnerships, store optimization and digitization. The company remains on track to realize $1.5 billion in annual cost savings by fiscal 2022.

Price Action

Shares of Walgreens were trading lower by 0.3% at $54.32 Friday afternoon.

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Photo credit: Michael Rivera, Wikimedia Commons