Bears Return to Walgreens Stock, Challenges Persist


Jan. 10 2020, Published 7:35 a.m. ET

Walgreens Boots Alliance (NASDAQ:WBA) shares, which showed some recovery at the back end of 2019, are under pressure again. The stock fell about 6% on Wednesday, which reflects the company’s weaker-than-expected start to fiscal 2020.

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Walgreens stock fell

Walgreens stock fell by more than 2% on Thursday. The selling pressure on Walgreens stock stems from the company’s continued weak financials.

Notably, the stock significantly underperformed the broader markets in 2019. The stock fell 13.7% compared to growth of about 29% in the S&P 500. CVS Health (NYSE:CVS) stock was 13.4%. On a year-to-date basis, Walgreens stock has fallen about 7.3%.

Walgreens’ top line is taking a hit from persisting challenges in its Boots UK business. US retail sales continue to decline, which reflects the strategic de-emphasis of tobacco. Besides low sales growth, Walgreens’ bottom-line performance was disappointing.

The company’s adjusted EPS has fallen in the last four quarters, which reflects industry-wide higher reimbursement pressure on the margins.

Several analysts cut their target price on the stock following the company’s lower-than-expected first-quarter performance.

Analysts cut the target price on Walgreens stock

Walgreens had a disappointing first-quarter performance. Analysts’ estimates indicate that Walgreens’ bottom line will likely decline in fiscal 2020 due to pressure in the first half. Several analysts cut their target price on the stock following its dismal show in the first quarter. Analysts made the following downward revisions in their target prices.

  • SunTrust cut its target price on the stock to $58 from $60.
  • UBS reduced the target price to $49 from $50.
  • J.P. Morgan decreased the target price to $62 from $63.
  • Evercore ISI cut the target price to $57 from $60.
  • Baird reduced the target price to $57 from $58.

On December 11, Wells Fargo downgraded Walgreens stock to “equal weight” from “overweight” and lowered the target price to $61 from $65.

Notably, most of the analysts remain on the sidelines on Walgreens stock. Among the 23 analysts, 19 recommend a “hold,” while four recommend a “sell.” Analysts’ consensus target price of $56.44 represents an upside of 3.2% based on its closing price of 54.68 on Thursday.

Recent financial performance

As we stated earlier, Walgreens posted weak first-quarter results. The company missed Wall Street’s expectations on the sales and earnings front. The company posted sales of $34.34 billion compared to analysts’ estimate of $36.60 billion. However, the revenues increased by 1.6% YoY (year-over-year).

Walgreens’ adjusted EPS of $1.37 missed analysts’ estimate of $1.41 and fell 6.2% YoY. Higher reimbursement pressure YoY took a toll on the company’s bottom line. Also, lower margins in Boots UK remained a drag.


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