Lower outlook to hurt WBA
Walgreens Boot Alliance (WBA) disappointed with weaker-than-expected earnings results for the second quarter of fiscal 2019 on April 2. Significant reimbursement pressure and challenging market conditions in the United States and the United Kingdom weighed on its quarterly performance.
Anticipating higher reimbursement pressure, WBA’s management has lowered its fiscal 2019 earnings outlook, which isn’t likely to sit well with investors. Walgreens’ bottom line is now expected to stay flat in fiscal 2019. Earlier, management had expected the company’s adjusted earnings to mark 7%–12% growth on a constant-currency basis.
WAKE UP WITH BAGELS & STOX, OUR NEW EMAIL THAT ENTERTAINS AND INFORMS YOU BEFORE THE DAY STARTS. SIGN UP HERE!
The steep reduction in WBA’s earnings outlook indicates that its growth rate is expected to slow in the second half of fiscal 2019. We expect Walgreens’ top line growth to slow in the second half as the company annualizes its Rite Aid acquisition. Currency volatility and challenging market conditions in the United States and the United Kingdom are likely to hurt it.
Walgreens’ bottom line is expected to be low, reflecting sales weakness and higher reimbursements. In comparison, rival CVS Health’s (CVS) top line is expected to mark strong growth led by Aetna. However, its earnings are expected to remain soft, reflecting price compression and reimbursement pressure.
We expect analysts to lower their consensus target price on Walgreens stock following the company’s tepid quarterly performance and weak guidance. However, as of April 1, 16 analysts have given WBA “hold” recommendations, seven have given it “buys,” and three have given it “sells.”
Shares of Walgreens have underperformed the benchmark index so far this year and are down 7.1% as of April 2.