Walgreens Stock Fizzles after Brief Recovery

  • This month, Walgreens stock has recovered by about 7%.
  • The stock fell about 2% last week, reflecting growth concerns.

Pressure on Walgreens (WBA) stock had started easing a bit. However, the revival was short lived, and WBA fell about 2% last week. As of September 20, the stock had risen about 7% this month, and fallen 19.5% year-to-date. It has significantly lagged behind broader markets and its peer, CVS Health (CVS). The benchmark S&P 500 is up 19.4% year-to-date, and CVS is down just 1.9%.

Walgreens stock’s low valuation and considerable decline this year have limited its downside. However, growth concerns could continue to stall its recovery, at least in the short term.

Walgreens’ profitability has been impacted by industry-wide reimbursement pressure. In the past two quarters, its bottom line has declined. The reimbursement pressure could keep its earnings weak in future quarters.

Meanwhile, reimbursements, price compression, and higher generic dispensing rates are hurting CVS Health’s profit margins as well. However, its bottom line grew robustly in this year’s first half, driven by the company’s Aetna acquisition.

Strength in Walgreens’s Retail Pharmacy USA and Pharmaceutical Wholesale divisions could continue to drive its revenue. Its top-line growth, however, could stay low due to lower Boots UK retail sales and store optimization.

Margin pressure and currency volatility could drag its earnings down. Moreover, digital, store, and labor investments could hurt its EPS. However, share repurchases could support WBA’s bottom line.

What analysts expect for Walgreens stock

Wall Street expects Walgreens’ top line to grow by a low-single-digit percentage in the fourth quarter and fiscal 2020. Meanwhile, analysts foresee its adjusted EPS falling about 5% in the fourth quarter, and staying muted in fiscal 2020.

Of the 24 analysts covering WBA stock, 18 suggest “hold,” four suggest “sell,” and two suggest “buy.” Their target price of $57.25 for the stock implies a mere 4% upside based on its September 20 closing price of $55.

Walgreens stock trades at 9.3 times analysts’ forward earnings estimate. However, the company’s low growth expectations make the stock’s valuation unattractive.