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Why Walgreens Stock Fell despite Beating Estimates

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Growth concern, persisting challenges hurting the stock

Walgreens Boots Alliance (WBA) posted better-than-expected first-quarter results on Thursday, December 20. The results relate to the three months that ended on November 30. Walgreens Boots Alliance’s net sales came in marginally ahead of analysts’ estimates and marked high-single-digit growth, thanks to the company’s acquisition of Rite Aid stores.

However, what spooked investors was the weak performance in the Retail Pharmacy International segment. A weak retail environment in the United Kingdom affected the segment’s top-line growth rate. Meanwhile, investors are worrying about growing competition in the retail business and reimbursement pressure. Rival CVS (CVS) is expected to expand its services with its Aetna acquisition. Meanwhile, Amazon (AMZN) has entered the pharmacy market, which is likely to pose challenges.

Moreover, Walgreens faces tough year-over-year comparisons as the previous year benefitted from hurricane-related sales and a strong cough, cold, and flu season.

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Also, Walgreens Boots Alliance is implementing a new restructuring program aimed at saving more than $1 billion annually by the end of the third year. The company plans to exit underperforming stores and is scaling back operations in Mexico and Chile and at its Pharmaceutical Wholesale division. Walgreens Boots Alliance’s cost-saving program raises concerns about future growth prospects.

WBA stock erased gains  

Concerns over the core retail pharmacy business took a toll on the WBA stock price. The graph above shows that shares of Walgreens Boots Alliance eroded all its gains recently following Goldman Sachs’s downgrade and first-quarter results. WBA stock is down 4.1% on a year-to-date basis as of December 20. Meanwhile, CVS stock is down 8.3%. The S&P 500 is down 7.7%.

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