Walgreens Gains On Strategic Deals, Margin Pressure Remains

On Jun 28, we issued an updated research report on Walgreens Boots Alliance, Inc. (NASDAQ:WBA) . The company suffers headwinds in the form of fierce competition and tough industry conditions. However, at the same time, it consistently reaps benefits from its growth initiatives and major business tie-ups. The stock carries a Zacks Rank #3 (Hold).

Over the past three months, the stock has underperformed its industry. It has declined 13.8% compared with the industry’s 8.9% decrease.

Walgreens Boots reported disappointing third-quarter fiscal 2019 bottom-line performance, largely due to persistent reimbursement pressure, adverse mix associated with brand inflation and a 50-basis-point impact due on account of faster growth in specialty business. The company expects the pharmacy trends, which are currently affecting the overall market, to continue doing so over the coming months.

On a positive note, Walgreens Boots’ adjusted earnings and revenues in the fiscal third quarter outpaced the respective Zacks Consensus Estimate. The Retail Pharmacy USA division is witnessing comparable prescription growth and benefiting from a strong retail prescription market as well. The Pharmaceutical Wholesale division too consistently registers a solid uptick.

Walgreens Boots has once again lodged robust year-over-year growth at CER within its Pharmaceutical Wholesale business. During the quarter, sales were up 8.3%, led by impressive emerging market performances. In the United Kingdom too, performance was encouraging, partly aided by a customer contract change that contributed to 2.3% revenue growth.

The intensifying competition in the U.S. retail drugstore market has compelled Walgreens Boots to diversify its product offerings. In this regard, investors are currently looking forward to Walgreens Boots’ alliance with Alphabet’s life sciences and healthcare segment, Verily, on multiple projects pertaining to chronic ailment. This partnership aims at providing advanced healthcare outcomes to chronic conditions like diabetes at low cost of care. Under the company’s recent tie-up with Kroger (NYSE:KR), it is working on a pilot program at selected Walgreens Boots outlets in Northern Kentucky.

Key Picks

A few better-ranked stocks in the broader medical space are DENTSPLY SIRONA (NASDAQ:XRAY) , Penumbra (NYSE:PEN) and CONMED Corporation (NASDAQ:CNMD) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

DENTSPLY’s long-term earnings growth rate is expected to be 11.5%.

Penumbra’s long-term earnings growth rate is projected at 21.5%.

CONMED’s long-term earnings growth rate is estimated at 13.3%.

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