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Jul 12, 2021
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Wallgreen Boots reported earnings on July the 1st that literally crushed estimates. WBA generated $34.03 billion in revenue (+12.1% y/y), beating estimates by $560 million and that flowed through to the bottom line, with GAAP EPS of $1.27, beating estimates by $0.36 per share.
Management increased its FY2021 guidance from mid-to-high single digit growth to around 10% growth and said that WBA is on track to deliver in excess of $2 billion in annual cost savings by FY2022. Despite these positives, WBA sold off quite a bit after the report was announced.
It appears that analysts were pricing in an even higher guidance increase than WBA had announced and lowered their ratings as a result.
Analysts are predicting that the end of the vaccination drive will result in less traffic and sales. Surely WBA had some benefit in terms of sales from drawing in potential customers as it administered more than 25 million vaccines, but even without that traffic, I'm still bullish on WBA's long-term prospects.
But why I'm bullish on the stock short term? The answers is that the sell off was unwarranted and the technicals have been looking quite well.
WBA had 6 red days since earnings were announced. The RSI went down to 18 being extremely oversold. Friday the stock bounced and now there is a bullish RSI divergence on the hourly chart on significant volume (7m vs 5m daily average volume). The stock bounced off the 200DMA.
Why calls are looking good? Because IV is quite low with an average of 27% for July the 30th expiry.
Apart from the above and the technicals, their stake at VillageMD and their plans for same day prescription delivery, along with the potential of a third covid booster needed all point to a (market allowing) bullish reversal and a return to the 52$ area.
WBA calls for July and August are looking good, share price likely to rebound
Positions: 620 48.5c 07/30 exp at an average price of 0.9 each
edit: position screenshot