Walgreens Boots Alliance
stock was rising Monday after an analyst cited confidence in shares of the beaten-down retail pharmacy chain following management changes.
J.P. Morgan
analyst Lisa Gill upgraded shares of
Walgreens
(ticker: WBA) to Overweight from Neutral and increased her target for the stock price to $30 from $27. The call comes after the company reported disappointing financial results and announced the appointment of a new chief executive officer.
Walgreens stock fell in September in response to news that Chief Executive Rosalind Brewer was stepping down from the role, but the shares had been dropping even before that. Walgreens cut its profit outlook in June, saying there was less demand for Covid-19 vaccines and testing, and that consumers were being cautious in their spending.
The stock has fallen 41% this year, and was on pace for its worst year on record.
On Oct. 12, Walgreens reported weaker earnings and revenue than Wall Street had expected and offered less upbeat financial guidance for fiscal 2023 than analysts had expected. But it was the announcement the day before that Tim Wentworth was stepping in as the new CEO that has raised hope on Wall Street.
“Today commences a new era for shares of WBA as Tim Wentworth assumes the CEO role,” Gill wrote in a research note Monday. “… While there is clearly work to be done, with a refreshed healthcare-focused management team and a lowered but credible bar that WBA has an opportunity to remove several overhangs in the coming quarters and improve performance.”
The analyst wrote that she is encouraged by the experience Wentworth is bringing to Walgreens from previous roles, including at Express Scripts and
Cigna Group
(CI). She also anticipates Walgreens will cut its quarterly dividend of 48 cents a share, and will prioritize reducing debt.
“Our rating is predicated on an upgraded management team executing vs an achievable bar from trough results and a valuation that appears to more than incorporate the uncertainty of the current situation,” Gill wrote. Walgreens currently trades at 6.2 times forward earnings, which is below the five-year average of 8.7 times.
Not all analysts are as upbeat as Gill. In a Friday research note, Mizuho Securities analyst Ann Hynes cut her price target on Walgreens to $23 from $25 and maintained her Neutral rating on the stock. She also lowered her fiscal 2024 and 2025 earnings estimates by 30 cents a share and 20 cents a share, respectively.
“We believe multiple expansion from the current trough will be predicated on improved earnings and cash flow generation, coupled with achieving profitability in the U.S. Healthcare segment,” Hynes said.
Shares of Walgreens were 4.8% higher to $22.28. The stock was the best performer Monday in the
S&P 500,
Dow Jones Industrial Average
and
Nasdaq 100.
Write to Angela Palumbo at [email protected]
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