WBA stock (NASDAQ:WBA) is up more than 6% after the firm reported a double-digit increase in fourth-quarter profits. The corporation ended its fiscal year with earnings per share (EPS) of 80 cents on $32.45 billion in sales. Analysts had predicted 71 cents per share and $32.15 billion in sales.
Walgreens Boots Alliance stock (NASDAQ:WBA) has now outperformed analysts’ expectations for eight consecutive quarters. Nonetheless, WBA stock (NASDAQ:WBA) seems to be flashing a warning flag. As a result, the recent increase in the stock price may be fleeting.
WBA Stock: This Time, the Good News Was Indeed Good News.
Markets have been selling on positive news and rising on negative news for weeks. However, Walgreens’ report gives investors reason to be optimistic. In particular, the business set full-year profit expectations of $4.45 to $4.65 per share. Analysts predict $4.53 per share for the whole year.
As a result, Walgreens’ earnings report may be the first indication that the widely anticipated earnings recession will not be as severe as expected. Or, at the absolute least, they may wait until after the holidays. Indeed, this might be one of the reasons why the whole market seemed to gain ground for the day.
Nonetheless, WBA stock (NASDAQ:WBA) is down 6% for the month and 28% for the year. This indicates it has suffered a greater loss than the S&P 500 and the Dow Jones Industrial Average (DJIA). And here is where investors are concerned.
Growth is Still a Challenge.
Surpassing expectations is positive, but it does not imply that WBA stock (NASDAQ:WBA) is cheap. The underlying patterns are the issue for Walgreens.
For example, sales fell consecutively in each quarter of this year. And each quarter was lower than the previous year’s similar quarter.
Okay, but 2021 isn’t a fair comparison, you argue. However, the revenue is still smaller if you go forward to 2020. Investors would have to travel back to the end of 2017 to get similar revenue figures.
And the earnings situation is substantially worse. Except for the quarter that coincided with the start of the COVID-19 outbreak, the firm has not reported profits of less than $1 since 2015.
The sales and profit figures result from the company’s declining operating margins over the previous decade. And the forecast for both is practically flat over the next five years.
However, there is some good news. Walgreens continues to generate a solid amount of free cash flow. Even there, though, the trend is in the wrong direction. In the previous three years, it has decreased by over 15% as a proportion of net income.
WBA Stock: Not Quite a Value Trap
WBA stock (NASDAQ:WBA) is expected to pique the interest of many income-seeking investors, with a dividend yield of just under 6% (5.88%) as of this writing. After all, the firm is a dividend aristocrat, having increased dividends for 46 straight years. And, with a free cash flow yield of 12%, the dividend is secure.
Furthermore, with the firm selling at an almost absurdly cheap price-to-earnings (P/E) ratio of 5.4x, it’s not unreasonable to suppose there’s value in buying WBA stock (NASDAQ:WBA). However, it’s difficult to do anything other than keep the stock on a watch list without proof that the firm can turn around its growth narrative.
Featured Image- Unsplash @ sachinajch
Author Okoro Chinedu 
