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Walgreens’ Retail Pharmacy Stays Firm Amid Reimbursement Woes


On Sep 12, we issued an updated research report on Walgreens Boots Alliance, Inc. WBA. The company consistently reaps benefits from its growth initiatives and major business tie-ups. However, it suffers headwinds in the form of fierce competition and tough industry conditions. 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 suffered a 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 negative impact 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 third-quarter fiscal 2019 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 also 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 fiscal third quarter, sales were up 8.3%, led by impressive emerging market performances. In the United Kingdom too, the company’s performance was encouraging, partly aided by a customer contract change that contributed to 2.3% revenue growth.

On the flip side, an 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, it is working on a pilot program at selected Walgreens Boots outlets in Northern Kentucky.

Key Picks

A few better-ranked stocks from the broader medical space are Baxter International Inc. BAX, GW Pharmaceuticals PLC GWPH and Neurotrope, Inc. NTRP.

Baxterhas a Zacks Rank #2 (Buy) and a projected long-term earnings growth rate of 12.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GW Pharmaceuticals estimates third-quarter earnings growth rate to be 72.8%. It currently sports a Zacks Rank #1.

Neurotrope has a Zacks Rank of 2 and an expected third-quarter earnings growth rate of 27.7%.

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