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Walgreens Boots Alliance Stock: Is Recovery a Long Shot?

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May. 13 2019, Published 1:51 p.m. ET

Stock performance

Walgreens Boots Alliance (WBA) stock is down about 17% since the company announced its weak fiscal 2019 second-quarter earnings on April 2. Moreover, management lowered the full-year earnings growth outlook, which didn’t sit well with investors. Persisting challenges in the retail pharmacy business and continued reimbursement pressure took a toll on its financials, and in turn, its stock price.

Walgreens has declined 21.8% so far this year and is trading close to its 52-week low. CVS Health (CVS) stock has also underperformed the benchmark index so far this year. Reimbursement pressure on margins, higher interest expenses, and an increase in outstanding share count took a toll on the profitability of the company, and in turn, its share price. CVS stock is down 15.8% on a YTD basis as of May 10.

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What’s next for WBA stock?

While Walgreens Boots Alliance is trading at a multiyear low valuation, it’s the expected deceleration in sales growth rate and continued pressure on earnings that restricts the recovery in the stock in the near term.

Walgreens stock trades at a forward PE multiple of 9.1x, which is about 40% lower than its average historical multiple of 15.0x. Despite the low valuation, the upside in WBA stock seems limited, reflecting the projected weakness in volumes in both the US and the UK and reimbursement pressure on earnings.

In comparison, CVS Health stock trades at a forward PE multiple of 8.1x, which is lower than Walgreens. Also, CVS Health is expected to post strong sales and operating income, driven by the Aetna acquisition. However, a projected decline in EPS dragged its stock down.

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