Walgreens Boots Alliance (WBA) is the largest global pharmacy and wellness retailer by number of stores, with more than 13,000 locations in 11 countries. WBA stock just reported quarterly earnings. Is Walgreens stock a buy?
Walgreens stock has a track record of failing to keep pace with the S&P 500 and is well below all-time highs. If you’re thinking about buying this Dow Jones component, it’s key to analyze the fundamental and technical picture first.
WBA Stock Earnings
Walgreens’ Q1 earnings on Jan. 6 beat analyst estimates. The drugstore chain reported adjusted earnings of $1.68 per share, up 53%. However, revenue fell 7% to $33.9 billion.
Both results still topped Wall Street views. Analysts expected earnings of $1.33 on $32.74 billion in revenue. WBA stock fell 2.9% following the report. But Walgreens shook that off and reversed powerfully higher on Jan. 7. That’s when technology stocks came under pressure amid rising interest rates and money notably flowed into defensive stocks and value stocks.
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The company said in a news release it administered 15.6 million vaccines in the first quarter, for a total of 56 million to date. “Our testing and vaccinations are tailwinds for our business,” CEO Rosalind Brewer said in a Jan. 6 earnings call with investors.
Same-store sales grew 10.6% — reportedly the biggest increase for the drugstore giant in more than 20 years. Customers stocking up on at-home Covid tests ahead of holiday get-togethers helped drive sales. Digital sales also boosted WBA stock’s bottom line, surging 88% in the first quarter. Online orders also increased from an average $30 per order vs. $20 in stores, CEO Brewer added.
Walgreens raised its outlook for fiscal 2022. It increased full-year adjusted EPS guidance to low-single digit growth from flat previously.
WBA Stock Rises On Possible Sale Of U.K. Stores
Walgreens stock turned in a strong performance in December, gaining more than 16%. Shares moved on reports the Dow Jones giant is considering selling or spinning off its Boots drugstore chain in the U.K. Shares rose nearly 4% on Dec. 6, sending WBA stock back above its 50-day line. Walgreens previously sold its European drug distribution unit to AmerisourceBergen (ABC) in a $6.5 billion deal in January.
The drugstore giant took proceeds from that transaction to invest in its growing health care segment.
Walgreens Stock Fundamental Analysis
To determine whether WBA stock is a buy now, fundamental and technical analysis are key.
The IBD Stock Checkup tool shows that WBA stock has an IBD Composite Rating of 69 out of a best-possible 99. IBD typically recommends focusing on stocks with a rating of 90 or higher. But turnaround stocks like Walgreens sometimes have lower ratings as their charts recover and start to improve.
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The Composite Rating looks at earnings and sales growth, profit margins, return on equity and relative stock price performance, among other metrics.
WBA stock also has a poor EPS Rating of 75 out of 99. The EPS rating compares a stock’s quarterly and annual earnings-per-share growth with that of all other stocks. EPS ratings also often lag in the early stages of turnarounds.
This puts the drugstore operator in the No. 2 slot against its retail peers in IBD’s small Retail-Drugstores industry group. That group ranks No. 76 out of the 197 industry groups that IBD tracks. Investors ideally want to focus on top stocks in the top quartile of IBD’s groups.
WBA Stock Technical Analysis
WBA stock is working on a long consolidation with a 57.15 buy point, according to MarketSmith chart analysis. After reversing higher in December to retake its 10-week moving average, Walgreens’ stock has struggled to find sustained momentum since reporting earnings on Jan. 6.
Shares are attempting to rebound from a 2022 low of 43.93 as they inch toward their downward-sloping 200-day line. Walgreens stock’s relative strength line is also trending higher after taking a hit in early 2022. WBA stock’s RS Rating is 53 out of a best-possible 99.
Consider Walgreens’ Relative Strength
Aside from a few brief periods, Walgreens’ relative strength line has been in a downtrend since the stock peaked back in 2015. While it’s moving in the right direction, WBA stock’s RS line largely has been on a steady decline since April 2021 and remains near its lowest levels in decades.
The RS line compares a stock’s price action with that of the S&P 500, meaning WBA stock has underperformed the market for years. From 1975 to its dot-com era highs in 2000, WBA stock notched significant returns. But from 2000 to 2015, Walgreens stock essentially only kept pace with the market.
Fast-forward to the coronavirus crash, and you’ll see the RS line for WBA stock had a short-term pop in March 2020 as the market tried to find a bottom.
Outperformance picked up a bit in early 2021 as value plays shifted into focus along with the vaccine rollout. Still, Walgreens stock is in a prolonged downtrend. The stock has trended lower since peaking in 2015. Maybe now the stock is showing renewed signs of life?
WBA Stock: Is It A Buy?
Bottom line: WBA stock is not a buy right now.
While Walgreens is consolidating with a 57.15 buy point, investors should focus on stocks that have stronger fundamentals, and better track records of technical outperformance — such as Relative Strength lines and RS scores.
To find the best stocks to buy and watch, check out IBD’s Stock Lists page. More stock ideas can be found on our Leaderboard and MarketSmith platforms.
Follow Alexis Garcia on Twitter @IBD_Alexis for business news and more.
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