On Monday, Morgan Stanley adjusted its outlook on Walgreens Boots Alliance (NASDAQ:WBA), reducing the price target to $20 from the previous $21, while keeping an Underweight rating on the stock. The adjustment follows Walgreens' recent financial results and guidance, which Morgan Stanley found surprising in its resilience given a challenging retail environment.
Walgreens' latest earnings report and lowered earnings per share (EPS) guidance prompted the firm to reassess the drugstore chain's financial health. Despite the mixed financial outcomes and the cut in EPS forecast, the stock's performance has been unexpectedly stable. Morgan Stanley's analysis suggests that the market had modest expectations before the earnings release, which may have contributed to the stock's steadiness.
The firm's revised forecast for Walgreens now sets the FY24 adjusted EPS at $3.22, a slight decrease from the previous $3.24 estimate, aligning with the consensus of $3.24. The new price target is based on a 5.6 times calendar year 2025 price-to-earnings (P/E) ratio, which is consistent with the company's historical trading range. Over the past 15 years, Walgreens has typically traded at a trough P/E multiple of around 5.5.
Morgan Stanley's analysis includes various factors that could impact Walgreens' future earnings, resulting in an estimated FY24 EPS range of $2.86 to $3.60, with a midpoint of $3.23. This estimate is in line with the company's own guidance of $3.20 to $3.35 and the consensus of $3.24. The firm's revised estimate of $3.22 reflects its expectation for Walgreens' earnings trajectory.
The report from Morgan Stanley underscores the ongoing challenges faced by Walgreens in a lackluster retail environment and the uncertainty surrounding the company's turnaround efforts. With the revised price target and EPS estimates, Morgan Stanley signals cautiousness about the stock's near-term prospects.
InvestingPro Insights
As investors digest Morgan Stanley's revised outlook on Walgreens Boots Alliance (NASDAQ:WBA), real-time data from InvestingPro reveals a nuanced picture of the company's financial standing. With a market capitalization of $18.08 billion, Walgreens shows resilience in its revenue growth, reporting an 8.48% increase over the last twelve months as of Q2 2024. This growth is further supported by a steady gross profit margin of 18.59% during the same period. Despite a challenging retail landscape, these figures suggest Walgreens' ability to maintain profitability.
InvestingPro Tips highlight the company's substantial dividend yield of 4.61%, which could be an attractive feature for income-focused investors, especially when considering the recent volatility in the stock's price. The stock has experienced a 1-week total return of 5.14%, indicating some recovery after a year-to-date downturn of -15.99%. It's also worth noting that the InvestingPro Fair Value estimate of $24.31 suggests potential upside from the previous close price of $21.69.
For investors seeking a deeper dive into Walgreens' financial health, there are additional InvestingPro Tips available, offering comprehensive analysis and guidance. Utilize coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and gain access to these invaluable insights. There are 15 more InvestingPro Tips that can further inform investment decisions regarding Walgreens Boots Alliance, offering a broader context beyond the scope of traditional analysis.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.