Walgreens Boots Alliance Expected To Close 25% Of Stores, But Financial Benefit Visible Only Next Year-Analyst

On Thursday, Walgreens Boots Alliance Inc (NASDAQ: WBA) reported third-quarter fiscal year 2024 sales of $36.35 billion, up 2.6% year over year (+2.5% on constant currency), beating the consensus of $36 billion.

Walgreens Boots Alliance has cut its fiscal year 2024 adjusted EPS guidance to $2.80-$2.95, compared to prior guidance of $3.20-$3.35 and consensus of $3.22.

As the earnings fell short of Wall Street estimates, the pharmacy chain revealed it would close a “significant” number of stores in the face of “headwinds.”

The disappointing earnings report caused shares to tumble as much as 25%.

Analyst reactions:

Barclays maintains the Underweight rating and lowers the price target from $15 to $11, stating Walgreens Boots Alliance cut its fiscal year 2024 EPS guidance on continued macro headwinds, which it expects to persist to fiscal year 2025.

• Barclays anticipates Walgreens Boots Alliance has over 2,000 stores under closure review and is considering divesting VillageMD, while Boots and Shields will be retained.

BofA Securities reiterates the Underperform rating and lowers the price target to $11 from $22, citing headwinds that will persist/limited positive catalysts.

• The BofA analyst writes that Walgreens should benefit in the near term from closed Rite Aid stores and accelerating the closure of up to 25% of its stores.
• The analyst adds that given the retail pharmacy’s weak position in the pharmacy ecosystem compared to PBMs and drug distributors, it is uncertain whether a more aggressive approach by retail pharmacies would lead to positive outcomes.

Evercore ISI maintains Walgreens Boots Alliance with an In-Line rating, lowering the price target from $17 to $10.

• The analyst writes Walgreens Boots Alliance’s earnings report has highlighted the ongoing challenges in the retail pharmacy sector, including issues with branded profitability, generic conversions, NADAC, and prescription growth. These factors contribute to the volatility the industry faces.
• While management’s efforts to enhance profitability by potentially closing approximately 25% of unprofitable stores are a positive step, an Evercore analyst writes that significant financial benefits are not anticipated until the second half of 2025 or later.

Price Action: WBA shares are down 0.90% at $12.08 at last check Friday.

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