Discussing WBA’s stock potential
As we discussed in the previous part of this series, Walgreens Boots Alliance (WBA) has failed to please investors in 2017. The stock is down 12% YTD (year-to-date) and is trading at $72.86.
However, Wall Street is looking for a revival, and it expects 18% growth in Walgreens’s stock price to $85.67. Individual target prices range between $72 (downside 1%) and $100 (upside 37%).
WBA’s ratings have worsened over the last three months. Its rating has come down from 2.0 in September to 2.2 in December 2017. Ratings are on a scale of 1 (strong buy) to 5 (sell).
The company was downgraded by Leerink Swann (from “Outperform” to “Market Perform”), Morgan Stanley (“Overweight” to “Equal-Weight”), and Raymond James (“Outperform” to “Market Perform”) over the last three months. Analysts lowered their recommendations, stating that WBA’s fiscal 2018 growth will be negatively impacted by preferred network exclusions, lower-than-expected Rite Aid synergies, a cut in UK reimbursement rates, and recent store closures in Puerto Rico.
Deutsche Bank initiated coverage on Walgreens in early December with a “Hold” rating.
Analyst Glen Santangelo commented in a client note, “We are initiating coverage of WBA with a hold rating and a $78 price target. WBA fully recognizes that standing still in its dynamic competitive landscape is not a viable option, and has commented many times that the US pharmaceutical supply chain needs to vertically integrate to reduce costs and become more efficient.”
Santangelo added, “The company thus far has been trying to take the more potentially cost effective partnership route, but it remains to be seen if that will be enough to reposition the struggling retail business. The Hold rating is a reflection of the ongoing challenges impacting both the US and International retail businesses which is translating to sub-par growth.”
Wall Street’s take and recommendations
26 Wall Street analysts cover Walgreens. The company is rated a “buy” by 58% of analysts and a “hold” by 42% of analysts. Despite the increasing pessimism about the company’s prospects, the pharmacy giant doesn’t have any “sell” recommendations.
In comparison, CVS Health (CVS) is currently rated a 2.1 with 67% “buy” and 33% “hold” recommendations.
Investors looking for exposure to Walgreens and CVS can consider the Van Eck Retail ETF (RTH), which invests ~9.2% of its portfolio in the two companies.