Walgreens Boots Alliance Inc’s (NASDAQ:WBA) stable earnings sentiment drives analysts to forecast positive growth of 8.64% annualised over the next few years, but it’s critical to take a step back and consider this projection. It is crucial for investors to do this, so they can judge the underlying components responsible for causing this projected increase, because the sustainability of returns to shareholders can be impacted on in different ways. To help investors get a top level understanding, I will try to evaluate Walgreens Boots Alliance’s margin behaviour to help recognise the underlying make-up of revenue and expenses that is responsible for driving future earnings expectations and what it means for WBA’s returns relative to its competitors.View out our latest analysis for Walgreens Boots Alliance
A closer look at WBA’s profit margin
In general, the value that accrues to equity holders is partly reliant on the ability of a company to convert sales revenue in to earnings. By calculating WBA’s profit margin, we can take a closer look at this ability and use it to understand what is driving earnings growth.
Margin Calculation for WBA
Profit Margin = Net Income ÷ Revenue
∴ Profit Margin = US$4.13b ÷ US$124.03b = 3.33%
There has been a flat movement in Walgreens Boots Alliance’s margin over the past five years, due to 10.98% in average net income growth, keeping pace with a 10.79% average growth in revenue indicating that that the previous revenue growth has been accompanied by a stable portion being translated in to net income. WBA’s most recent margin of 3.33% appears to follow this trend, indicating that earnings growth has likely been driven through revenue growth alongside the benefits of improved cost management.
What does Walgreens Boots Alliance’s margin expectation tell us about future earnings?
It is expected that margins will shift towards expansion, with annual revenue growth tipped at 4.66% and annual net income growth forecasted at 8.64%. This suggests future earnings growth is driven further by enhanced cost efficiency alongside revenue increases, which is enlarging the incremental amount of net income that is retained from the forecasted revenue growth. However, investors should realise margin expansion can hold various implications on the company’s performance depending on how it operates, which makes further research very important.
For WBA, there are three relevant aspects you should further examine:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is WBA worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether WBA is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of WBA? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!