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Walgreens Boots Invests in China to Fortify Retail Pharmacy

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Walgreens Boots Alliance, Inc. (WBA - Free Report) has set a major milestone to expand global footprint with its decision to acquire a 40% stake in Sinopharm Holding Guoda Drugstores Co., Ltd. (GuoDa), a subsidiary of China National Accord Medicines Corporation Ltd. On successful completion, this investment should provide a strong impetus to Walgreens’ worldwide retail pharmacy business.

Following this news, shares of Walgreens rose 1.24% to reach $71.05 on Dec 6.

Notably, Shanghai-based GuoDa is a large national pharmacy chain in China. It is the retail pharmacy platform of China National Pharmaceutical Group Corporation (CNPGC).

Financial Terms

This 40% minority stake in GuoDa will be purchased by Walgreens for through a capital increase of worth $416 million, subject to certain regulatory review and approval plus other customary closing conditions. Upon completion, Walgreens would account for this stake as an equity method investment.

China Retail Market at a Glance

Per a report by IBISWorld, revenues for the Pharmacy and Drugstore industry in China have been growing at an annualized rate of 16.6% over the past five years now. Per the report, substantial growth in demand for drugs in domestic retail purchase, relatively expensive drug prices in hospitals and increasing self-medication rate are major factors spurring this stupendous growth.

Prospects With GuoDa

Per Walgreens, GuoDa as China’s leading pharmacy chain is going to contribute to its global pharmacy expertise. Incidentally, Walgreens already has a strong base in China, courtesy of its merger with Alliance Boots. This latest development with GuoDa will further strengthen its business in this densely populated region. The company is particularly excited about its opportunity to invest in the country’s fast-growing retail pharmacy sector.

Share Price

 


 

Over the past three months, Walgreens has been trading above the broader industry. The stock has lost 12.7%, narrower than the industry’s 13.5% decline during this period.

Declining sales at the Retail Pharmacy International was a disappointment leading to a drop in the share price of the company in the recent past. We expect this to improve a little with the latest strategic decision by Walgreens.

Zacks Rank and Key Picks

Walgreens carries a Zacks Rank #3 (Hold). A few better-ranked medical stocks are PetMed Express, Inc. (PETS - Free Report) , Align Technology, Inc. (ALGN - Free Report) and Myriad Genetics, Inc. (MYGN - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed has a long-term expected earnings growth rate of 10%. The stock has rallied roughly 83.9% over a year.

Align Technology has a long-term expected earnings growth rate of 28.9%. The stock has gained 134.7% in a year.

Myriad Genetics has a long-term expected earnings growth rate of 15%. The stock has soared 94.9% in a year.

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