Have you been paying attention to shares of Walgreens Boots Alliance (WBA)? Shares have been on the move with the stock up 13.3% over the past month. The stock hit a new 52-week high of $81.96 in the previous session. Walgreens Boots Alliance has gained 12.8% since the start of the year compared to the 10% move for the Zacks Retail-Wholesale sector and the 12.9% return for the Zacks Retail - Pharmacies and Drug Stores industry.
What's Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on October 11, 2018, Walgreens reported EPS of $1.48 versus consensus estimate of $1.44.
For the current fiscal year, Walgreens is expected to post earnings of $6.54 per share on $137.65 billion in revenues. This represents an 8.64% change in EPS on a 4.65% change in revenues. For the next fiscal year, the company is expected to earn $7.06 per share on $142.01 billion in revenues. This represents a year-over-year change of 7.83% and 3.16%, respectively.
Walgreens may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.
Walgreens has a Value Score of B. The stock's Growth and Momentum Scores are B and C, respectively, giving the company a VGM Score of A.
In terms of its value breakdown, the stock currently trades at 12.5X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 10.5X versus its peer group's average of 8X. Additionally, the stock has a PEG ratio of 1.3. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Walgreens currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Walgreens passes the test. Thus, it seems as though Walgreens shares could have potential in the weeks and months to come.
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Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report
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