TD Cowen analyst Charles Rhyee slashed the price target on Walgreens Boots Alliance stock to $22 from $35 while keeping a Buy rating. Despite his conviction about a turnaround at the drug store chain in the long run, Rhyee cut the estimates following the Q3 FY24 print due to a weak outlook. WBA shares have declined 55% owing to macro pressures and the headwinds in the retail pharmacy space.
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About Walgreens and its Latest Results
Walgreens Boots Alliance addresses customers’ healthcare, pharmacy, and beauty needs under one umbrella. It operates one of the largest drugstore chains in the U.S. and has leading market shares in Europe and Latin America. The company operates through three segments: U.S. Retail Pharmacy, International, and U.S. Healthcare.
On June 27, WBA reported mixed results for the third quarter of Fiscal 2024. Revenues exceeded expectations while adjusted earnings per share (EPS) missed estimates. At the same time, the company significantly cut its full-year adjusted EPS outlook. Challenging pharmacy sector trends and a weakened U.S. consumer environment forced the company to lower its guidance. To improve its performance, WBA announced several steps, including the closure of underperforming stores and the launch of the U.S. Retail Pharmacy action plan.
Rhyee Updates Earnings Estimates Following Revised Guidance
Following Walgreens’ lowered FY24 guidance and management’s comments, Rhyee lowered his model estimates for FY24 and FY25, which led to a sharp decline in the price target. For FY24 and FY25, Rhyee now projects adjusted EPS of $2.90 and $2.06, respectively.
Similarly, Rhyee gave his revised estimates for the three segments. For U.S. Retail Pharmacy, FY24 and FY25 sales are forecasted at $114 billion and $112 billion, respectively. For International, sales are pegged at $23.5 and $24.3 billion for FY24 and FY25, respectively. Finally, for U.S. Healthcare, sales for FY24 are modeled at $8.4 billion.
Importantly, Rhyee has full belief in WBA’s long-term turnaround and the possibility of a more stable business going forward. Rhyee stated that the accelerated store closure will be helpful as it will reduce fixed costs. Also, WBA plans to sell its stake in VillageMD while retaining Shields and Boots. The analyst noted that management sees a greater possibility of the sale of Boots at a later stage while Shields is seen as a solid complementary business. Furthermore, the analyst is looking forward to gaining more clarity on the financial impacts of these measures during WBA’s earnings call for Q4 FY24 in October.
What is the Future of WBA Stock?
Wall Street analysts do not share the same enthusiasm for WBA stock as Rhyee. On TipRanks, WBA has a Hold consensus rating based on two Buys, seven Holds, and three Sell ratings. The average Walgreens Boots Alliance price target of $18 implies 48.8% upside potential from current levels.
Ending Thoughts
Analyst Rhyee’s view on Walgreens’ long-term turnaround is supported by the company’s strategic initiatives. Even so, the analyst cut the price target for WBA stock to reflect the current challenges and financial performance. Meanwhile, WBA pays a regular quarterly dividend of $0.25 per share, reflecting a hefty above-average yield of 12.07%, making it an attractive bet.
