The Dow Jones Industrial Average gave up another 254 points today, as the first half of the year came to an end in what has been a brutal six months for stocks. The Dow finished the first half of the year down nearly 16%. Investors have spent the year battling high inflation, rapidly rising interest rates, the Fed’s reduction of its balance sheet, Russia’s ongoing invasion of Ukraine, and a looming recession.
Today’s sell-off didn’t appear to be anything new, although the Fed’s preferred gauge for inflation, the core personal consumption expenditures price index, rose 4.7% in May compared to a year prior. Experts had actually been projecting a 4.8% increase, so the news wasn’t as bad as expected — but inflation is still high and it confirms what has already been known.
The longer inflation persists, the more aggressive the Fed has to be with rate hikes to get inflation under control, which could continue to create market volatility. Although the majority of the Dow’s 30 stocks finished in the red today, one in particular really dragged the Dow down after a poor earnings release this morning.
Slowing COVID-19 vaccine usage
The retail pharmacy giant Walgreens (NASDAQ: WBA) reported adjusted earnings per share of $0.92 on revenue of $32.6 billion for the company’s third fiscal quarter of 2022 ending May 31.
Both numbers beat analyst estimates, but the company took a hit after reporting decreasing demand for COVID-19 vaccines and heavier investments in the business, which sent shares down close to 7.3%. For the year, Walgreens is down more than 28%.
In the quarter, Walgreens administered roughly 4.7 million COVID-19 vaccinations, which is down significantly from the 17 million it did in the same quarter of 2021. This isn’t a huge surprise, considering most people took their booster shot in late 2021 or in the beginning of this year. On the company’s earnings call, management said the trend could continue to be a headwind next year as well.
Walgreens also maintained its full-year guidance, expecting to grow adjusted earnings per share (EPS) for the full fiscal year 2022 in the low single-digit percentage range.
For the core business, the company slightly raised EPS growth projections from a midpoint of 7% growth to a midpoint of 8% growth. However, investments in Walgreens’ healthcare business forced the company to lower adjusted EPS growth projections in that segment from -5% to -6%.
Buy Walgreens after a tough start in 2022?
Walgreens is one of those stocks that has pricing power, in part due to its strong brand, but also because the products it sells are necessities that still need to be purchased in a recession. Management also noted that the company has been able to offset wage inflation.
The decrease of COVID-19 vaccines could be a headwind, but that slowdown was inevitable. Walgreens has a lot to execute on, including the successful build-out of its relatively new digital healthcare business, Walgreens Health.
But the stock is a good defensive consumer play. It trades at under 7.5 times forward earnings, and has an extremely attractive 5% dividend yield, so it could be an attractive stock to buy right now.