Walgreens recently reported its Q4’24 results (fiscal ends in August), with revenue and earnings exceeding our expectations. The company reported revenue of $37.5 billion and adjusted earnings of $0.39 per share, compared to our estimates of $34.9 billion, and $0.38, respectively. Not only did Walgreens post upbeat earnings, its outlook for fiscal 2025 aligned with the consensus estimates. This boded well with the investors, and WBA stock surged over 20% in two days. In this note, we discuss Walgreens’ stock performance, key takeaways from its recent results, and valuation.
How Did Walgreens Perform In Q4?
Walgreens’ revenues were up 6% to $37.5 billion in Q4’24, primarily benefiting from its U.S. Retail Pharmacy business, rising 6.5% y-o-y to $29.5 billion, International sales up, 3.2% to $6.0 billion, and the U.S. Healthcare business, up 7.1% to $2.1 billion. The Pharmacy revenue growth was primarily driven by drug price inflation, while the retail sales were down 3.5%. The Germany wholesale business continued to lead the growth for the company’s international operations.
Walgreens’ adjusted operating margin declined to 0.9% in Q4’24, versus 1.6% in the prior-year quarter. It reported adjusted earnings of $0.39 per share, compared to $0.67 per share in the prior-year quarter. This can be attributed to a reimbursement pressure.
Overall, the company fared better than anticipated in Q4. Looking forward, it expects its fiscal 2025 sales to be in the range of $147 and $151 billion, and adjusted earnings to be between $1.40 and $1.80. These estimates broadly align with the consensus estimates.
What Does This Mean For WBA Stock?
The outlook for 2025 does give some optimism to the investors. Walgreens’ management stated that it plans to close 1,200 stores over the next three years to improve its profitability. 500 of those will be closed in 2025, bolstering its overall margin profile. We estimate Walgreens’ Valuation to now be $14 per share, based on a 8x forward expected adjusted earnings of $1.71, slightly below the stock’s average P/E ratio of 9x over the last four years.
Now, despite its 20% rise in two days, WBA stock remains down 56% year-to-date. Even if we look at a slightly longer period, the changes in WBA stock have been far from consistent, with annual returns being more volatile than the S&P 500. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, is much less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
While WBA stock looks like it can see higher levels, it is helpful to see how Walgreens’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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