Walgreens Boots Rides On Retail Pharmacy USA, Strategic Deals

On Mar 4, we issued an updated research report on Walgreens Boots Alliance, Inc. (NASDAQ:WBA) . The company's series of strategic deals is expected to benefit it more over the long run. Its strong cash balance and progress in cost-cutting initiatives further boost investor confidence in the stock. The stock carries a Zacks Rank #3 (Hold).

In the last reported quarter, Retail Pharmacy USA division witnessed comparable prescription growth and also gained from a strong retail prescription market. Within this segment, Walgreens Boots has been flourishing on account of prescription volume expansion. Solid pharmacy sales growth encourages us reflecting synergies from Rite Aid store addition and organic growth.

Within Retail Pharmacy USA, the company is currently launching a phase of transformational cost management to counteract margin pressure.

The company has been gaining on account of strategic tie-ups as well. We are looking forward to Walgreens Boots’ recent alliance with Alphabet’s life sciences and healthcare segment — Verily — to collaborate on multiple projects in relation with chronic ailments. Also, the company’s teaming up with Express Scripts (NASDAQ:ESRX) and Kroger (NYSE:KR) are aimed to expand its existing group purchasing efforts and product offerings, respectively.

Moreover, Walgreens Boots with Onduo — Verily's joint venture with Sanofi (PA:SASY) — will unveil a virtual diabetes solution. This in turn, will cater to Walgreens Boots' employees and family members with Type 2 diabetes via the Walgreens Boots employee health plan.

However, in recent quarters, Walgreens Boots Retail Pharmacy International division has been persistently soft. Also, in the last reported quarter, sales declined 5.9%. In the United Kingdom, comparable pharmacy sales dipped 3.5% and comparable retail sales slipped 2.6% during the reported quarter.

Walgreens Boots faces headwinds in the form of fierce competition and tough industry conditions. Even though the company consistently reaps benefits from its growth initiatives, major business tycoons are already advancing in pharmacy businesses, flaunting a fair market share.

Notably, a slowdown in generic introduction over the last few years has been affecting Walgreens Boots' margins. Also, an escalated reimbursement pressure and a generic drug cost inflation have been denting Walgreens Boots' margins significantly.

Over the past six months, shares of Walgreens Boots have underperformed its industry. The stock has declined 4.8% versus the industry's 1.4% rise.

Key Picks

A few better-ranked stocks in the broader medical space are ABIOMED, Inc., (NASDAQ:ABMD) , Varian Medical Systems, Inc. (NYSE:VAR) and Masimo, Inc. (NASDAQ:MASI) , all currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ABIOMED’s long-term earnings growth rate is expected at 27.67%.

Varian’s long-term earnings growth rate is projected at 8.00%.

Masimo’s long-term earnings are estimated to grow 15.60%.

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