Walgreens Stock: Deutsche Bank Recommends a ‘Sell’

  • Walgreens stock closed 4.3% lower on Thursday.
  • Deutsche Bank initiated coverage with a “sell” rating.

Walgreens stock closed lower

Deutsche Bank started coverage on Walgreens Boots Alliance (WBA) stock with a “sell” recommendation, according to a CNBC report. In contrast, Deutsche Bank recommended a “buy” on CVS Health (CVS) stock. Walgreens stock closed 4.3% lower on Thursday after the news.

While both of the companies trade at roughly the same valuation multiple, Walgreens stock has significantly underperformed CVS on a YTD (year-to-date) basis. The stock has fallen about 18.7% YTD as of Thursday. During the same period, CVS stock fell 2.5% and recovered sharply. The recovery in CVS stock was driven by its solid first-half performance and increased fiscal guidance.

Notably, higher reimbursement pressure dragged Walgreens and CVS stocks down. However, CVS Health’s acquisition of Aetna boosted its top and bottom-line growth. The company’s revenues increased 35% in the first half of 2019. Meanwhile, the adjusted EPS beat analysts’ estimates by a wide margin and rose 11.1% in the first half.

In comparison, Walgreens’ adjusted EPS fell in the last two quarters, which reflected higher reimbursement pressure. Analysts expect the company’s bottom line to remain weak in the near term, including the fourth quarter and the first half of fiscal 2020.

Despite challenges, we expect Walgreens to benefit from growth in pharmacy sales due to an increase in prescription volume and brand inflation. Also, the company’s digital transformation, closure of underperforming sales, and expanded partnership with Kroger will likely support its financials.

However, Walgreens’ sales growth will likely stay low due to lower retail sales and challenges in Boots UK. Reimbursement pressure will continue to hurt the company’s bottom line.

What do analysts recommend?

Most of the analysts covering Walgreens stock suggest a “hold.” Among the 24 analysts covering the stock, 18 recommend a “hold,” four recommend a “sell,” and two recommend a “buy.”

Analysts maintained a target price of $57.10 on Walgreens, which implies an upside of 2.3% based on its closing price of $55.56 on Thursday.

For CVS stock, 17 analysts recommend a “buy,” while ten recommend a “hold.” The consensus target price of $69.83 implies an upside of 9.3% based on its closing price of $63.90.