Walgreens Gains From New Alliances, International Expansion

On Nov 28, we issued an updated research report on Walgreens Boots Alliance, Inc. (NASDAQ:WBA) . We are currently looking forward to the company's Rite Aid store purchase, which is expected to benefit the company in the long run. The stock carries a Zacks Rank #2 (Buy).

Over the past three months, Walgreens Boots has been outperforming its industry. The stock has gained 24.8% in comparison to the industry's 13.9% rise.

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

The company has been gaining on account of strategic tie-ups. We are looking forward to Walgreens Boots’ alliance with Express Scripts (NASDAQ:ESRX) and Kroger (NYSE:KR), aimed at expanding its existing group purchasing efforts and product offerings, respectively.

Per the company’s partnership with Kroger, a pilot program will be launched at selected 13 Walgreens outlets in Northern Kentucky. According to the deal, customers ordering Kroger grocery items online can pick them up at Walgreens’ outlets.

Walgreens Boots’ tie up with Express Scripts is expected to expand its existing group purchasing efforts. Since biosimilars have the potential to lower production costs, the move is considered to be a prudent and timely one.

This apart, the Rite Aid deal seems to benefit Walgreens Boots in more ways than one. Accordingly, the collaboration allowed Rite Aid to buy generic drugs sourced through a Walgreens Boots' affiliate at a cost equivalent to the company's for about 10 years, which raises optimism.

We are also hopeful about Walgreen Boots' global footprint expansion with its decision to acquire a 40% stake in Sinopharm Holding Guoda Drugstores, a subsidiary of China National Accord Medicines Corporation Ltd.

However, Walgreens Boots faces headwinds in the form of fierce competition and tough industry conditions. Even though the company continues to reap 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 generic drug cost inflation have been denting Walgreens Boots' margins significantly.

Other Key Picks

Other top-ranked stocks in the broader medical space are Integer Holdings Corp. (NYSE:ITGR) , Surmodics, Inc. (NASDAQ:SRDX) and Veeva Systems (NYSE:VEEV) .

Veeva Systems’ long-term earnings growth rate is estimated at 19.3%. The stock carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Integer Holdings has an expected earnings growth rate of 30.3% for the current year and a Zacks Rank #2.

Surmodics’ long-term earnings growth rate is projected at 10%. The stock carries a Zacks Rank of 2 currently.

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