With COVID-19 infections reaching peak levels, Walgreens Boots Alliance Inc. should get a boost from demand for vaccine administration and at-home testing, Mizuho analysts say.
Walgreens WBA, +0.82% reported fiscal first-quarter results that beat expectations last week, and raised its full-year outlook. The pharmacy retailer also announced that has created a new healthcare reporting segment for its growing primary care business, Walgreens Health.
“We believe COVID-19 testing will remain strong in FQ2:22 and that Walgreens’s target is achievable given the recent spike of the Omicron variant and strong demand for home tests,” said Mizuho Securities analysts in a note.
Walgreens Chief Executive Rosalind Brewer said on the company’s earnings call that it had administered 56 million COVID vaccines as of last Monday.
“Walgreens began offering COVID vaccine boosters in September and to-date, we have administered over 9 million doses,” she said, according to a FactSet transcript.
“Our testing and diagnostics business has also accelerated with over 22.9 million COVID tests completed to-date. Not only will we continue to grow this vital service as part of our pandemic effort, we are building on this platform as we are developing a wider range of testing and diagnostic solutions for our customers.”
The company began administering vaccines to children in the U.S. ages 5 to 11 in November 2021.
Looking forward, Chief Financial Officer James Kehoe says the company expects 30 million vaccinations this year, up 5 million from previous guidance. Of that total, 19 million are expected to be boosters and 2 million to 2.5 million will be pediatric vaccines.
“[T]the biggest driver in the first quarter is actually probably testing as opposed to vaccines,” Kehoe said, estimating earnings per share contribution from testing and vaccines.
“And that’s probably in the range of $0.12 to kind of $0.15 just on the on the full year. So, I’m giving you a full year number. So $0.09 on vaccines and testing is, call it, $0.12 to $0.15. So quite a sizable contribution to the full year.”
Walgreens raised its full-year adjusted EPS guidance to low-single digit growth from flat previously. The FactSet consensus is for EPS of $5.02, implying a 2.2% increase.
“We believe there is likely upside to the raised guidance. We estimate every 1 million in additional COVID vaccines will bring ~+$0.02 to FY22 adjusted EPS,” Mizuho said.
“We view Walgreens’s strategy and execution to turn Walgreens Health into both revenue and earnings growth engines as a key driver of stock performance.”
Mizuho rates Walgreens stock neutral with a $56 price target.
UBS analysts were “surprised” that the stock didn’t react more favorably to the results.
Walgreens shares closed down nearly 3% on Thursday, when the results were announced. Walgreens shares are up 13.5% over the past year. The S&P 500 index SPX, +0.62% has gained 23.4% for the period.
“Investors are perhaps a little underwhelmed by the guidance increase and
commentary around 2Q, but management did admit that it was still early in the fiscal year and we believe they are being conservative,” analysts said.
“Ultimately we believe Walgreens’s stock will trade on the successes of the Health business, how well it integrates its recent acquisitions and the growth and margins it can achieve.”
UBS rates Walgreens shares neutral with a $52 price target.
Raymond James rates Walgreens market perform.
“While it was a strong quarter, margins are likely to be pressured through the remainder of the year as vaccine and testing profits are likely to peak in 1H22 due to both seasonality and competition from the Biden administration re: 500 million at-home tests,” analysts said.
“At the same time, continued reimbursement headwinds and a $120 million labor headwind will remain as structural issues.”
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