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Walgreens Boots Grapples with Headwinds: Should You Dump?
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On Mar 8, we issued an updated research report on Illinois-based leading pharmacy-led, health and wellbeing enterprise Walgreens Boots Alliance, Inc. (WBA - Free Report) .
In the last one month, Walgreens Boots traded above the Zacks categorized Retail-Drug Stores industry. In spite of top-line weakness in the reported first-quarter 2017, we believe the company’s share price has maintained the uptrend primarily banking on a strong first-quarter performance. The stock has so far gained 2.2%, higher than the 2.1% gain of the industry.
On the contrary, over the last three months, a comparative study of the company’s forward P/E (F12M basis) multiple reflected that the stock is quite overvalued. The multiple currently stands at 16.0, a bit stretched when compared to its own range (median of 15.9). Moreover, even when compared with the market at large, the comparison is unfavorable as the current P/E (F12M basis) for the broader industry is at 13.7 and the median level is 14.4. We believe the company’s new strategic pharmacy tie-ups and several recent programs including skin product launch and vaccination will keep the valuation stretched for some time.
Meanwhile, over the last few years, slowdown in generic introduction, increased reimbursement pressure and generic drug cost inflation have been hampering the company’s margin significantly. In the recently concluded first quarter of 2017, Walgreens Boots’ gross margin figures declined, in line with management’s expectation. Management also continues to witness lower profitability in Boots UK comparable pharmacy due to weak margins in the U.K. However, the company is working toward increasing efficiency and providing high quality and cost-effective pharmacy services, in order to reduce overall pharmacy costs.
Also, Walgreens Boots faces obstacles in the form of increased competition and tough industry conditions. Even though the company continues to gain market share from other traditional drug store retailers, major mass merchants such as Target and Wal-Mart are expanding their pharmacy businesses. There are also risks from other channels such as supermarkets and mail order operations. In addition, industry conditions remain challenging as insurers slash reimbursement rates and raise prescription co-payments.
Other issues such as currency fluctuations, weak macroeconomic environment and delay of Walgreens Boots’ long impending buyout of Rite Aid also raise concerns.
Zacks Rank & Key Picks
Walgreens Boots currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the medical product sector are Inogen, Inc. (INGN - Free Report) , Bovie Medical Corporation and Neogen Corp. (NEOG - Free Report) . Inogen sports a Zacks Rank #1 (Strong Buy) while the other two companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inogen gained over 100% in the last one year in comparison to the S&P 500’s gain of 18.7%. The company has a stellar four-quarter average earnings surprise of over 49.08%.
Bovie Medical surged 78.5% in the last one year in comparison to the S&P 500. It has a four-quarter average earnings surprise of 28.7%.
Neogen gained 26.6% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth rate of 16.7% for the next five years compared to the industry average of 15.2%.
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Walgreens Boots Grapples with Headwinds: Should You Dump?
On Mar 8, we issued an updated research report on Illinois-based leading pharmacy-led, health and wellbeing enterprise Walgreens Boots Alliance, Inc. (WBA - Free Report) .
In the last one month, Walgreens Boots traded above the Zacks categorized Retail-Drug Stores industry. In spite of top-line weakness in the reported first-quarter 2017, we believe the company’s share price has maintained the uptrend primarily banking on a strong first-quarter performance. The stock has so far gained 2.2%, higher than the 2.1% gain of the industry.
On the contrary, over the last three months, a comparative study of the company’s forward P/E (F12M basis) multiple reflected that the stock is quite overvalued. The multiple currently stands at 16.0, a bit stretched when compared to its own range (median of 15.9). Moreover, even when compared with the market at large, the comparison is unfavorable as the current P/E (F12M basis) for the broader industry is at 13.7 and the median level is 14.4. We believe the company’s new strategic pharmacy tie-ups and several recent programs including skin product launch and vaccination will keep the valuation stretched for some time.
Meanwhile, over the last few years, slowdown in generic introduction, increased reimbursement pressure and generic drug cost inflation have been hampering the company’s margin significantly. In the recently concluded first quarter of 2017, Walgreens Boots’ gross margin figures declined, in line with management’s expectation. Management also continues to witness lower profitability in Boots UK comparable pharmacy due to weak margins in the U.K. However, the company is working toward increasing efficiency and providing high quality and cost-effective pharmacy services, in order to reduce overall pharmacy costs.
Also, Walgreens Boots faces obstacles in the form of increased competition and tough industry conditions. Even though the company continues to gain market share from other traditional drug store retailers, major mass merchants such as Target and Wal-Mart are expanding their pharmacy businesses. There are also risks from other channels such as supermarkets and mail order operations. In addition, industry conditions remain challenging as insurers slash reimbursement rates and raise prescription co-payments.
Other issues such as currency fluctuations, weak macroeconomic environment and delay of Walgreens Boots’ long impending buyout of Rite Aid also raise concerns.
Zacks Rank & Key Picks
Walgreens Boots currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the medical product sector are Inogen, Inc. (INGN - Free Report) , Bovie Medical Corporation and Neogen Corp. (NEOG - Free Report) . Inogen sports a Zacks Rank #1 (Strong Buy) while the other two companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Inogen gained over 100% in the last one year in comparison to the S&P 500’s gain of 18.7%. The company has a stellar four-quarter average earnings surprise of over 49.08%.
Bovie Medical surged 78.5% in the last one year in comparison to the S&P 500. It has a four-quarter average earnings surprise of 28.7%.
Neogen gained 26.6% in the past one year, better than the S&P 500 mark. The stock has an impressive long-term earnings growth rate of 16.7% for the next five years compared to the industry average of 15.2%.
8 Stocks with Huge Profit Potential
Just released: Driverless Cars: Your Roadmap to Mega-Profits Today. In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>