Bearish Stock to Watch: Walgreens Boots Alliance Inc (NASDAQ: WBA)

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Walgreens Boots Alliance Inc (NASDAQ: WBA) stock lost over 1% on 16th October, 2020 (as of 11:04 am GMT-4; Source: Google finance) after the company projects a return to growth in profit next year, driven by hopes on shoppers coming back to its stores in the second half of the year after the development of safe and effective coronavirus vaccine. The company’s Transformational Cost Management Program remains on track to deliver at least $2 billion of annual cost savings by 2022, and cash generation was strong. The company generated the operating cash flow of $5.5 billion with free cash flow growing 5.6% to $4.1 billion.

WBA in the fourth quarter of FY 20 has reported the adjusted revenue growth of 2.3 percent driven by Retail Pharmacy USA and Pharmaceutical Wholesale and only partly offset by Retail Pharmacy International. Adjusted operating income fell 27.4% on a constant currency basis, due to an estimated $520 million adverse impact of COVID-19. Over 60% of the impact was in international markets. Adjusted EPS declined by 27.9% to $1.02 on the constant currency. While the COVID impact of $0.46 was significant, it was an improvement compared to the $0.63 impact in the third quarter.

Moreover, during fourth quarter, for Retail Pharmacy USA segment, sales rose 3.6% in the fourth quarter, including the impact of store closures. Total comp sales grew 3.6%, with pharmacy growing 3.2% and retail 4.7%. Adjusted gross profit of the segment fell 4.5% and adjusted gross margin contracted 170 basis points, which reflects a sequential improvement of 85 basis points compared to the third quarter. Total pharmacy sales rose 4.2% in the quarter, driven by script growth, brand inflation, and central specialty growth of 12.5%.

The company projects adjusted profit for fiscal 2021 to grow in single digits at constant currency rates. The analysts had estimated the growth of about 1%, according to IBES data from Refinitiv. For fiscal 2021, the company intends to take initiatives to further strengthen the bond with the customers, whether they choose to interact with the company physically or digitally, driving volumes in both pharmacy and retail. The company foresee that all markets and many businesses will continue to face the negative impact of COVID in fiscal year ’21, and it is anticipated that the next two quarters will see difficult trading conditions. However, the company is optimistic to see a market recovery as the year progresses. Therefore, the company expects a significant improvement in the performance in the second half of the year.

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