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Walgreens Counts on International Progress, Strategic Deals

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On Dec 27, we issued an updated research report on Walgreens Boots Alliance, Inc. (WBA - Free Report) . The company’s series of strategic deals is expected to benefit it more over the long run. Its strong cash balance and progress in cost-cutting initiatives further boost investor confidence in the stock. The stock carries a Zacks Rank #3 (Hold).

Over the past six months, shares of Walgreens Boots have outperformed its industry. The stock has rallied 11.3% compared with the industry's 6.9% rise.

In the last reported quarter, Retail Pharmacy USA division witnessed comparable prescription growth and benefited from a strong retail prescription market. Within this segment, Walgreens Boots has been making a good improvement on account of expanding prescription volume. Solid pharmacy sales growth encourages us through synergies drawn from Rite Aid store addition and organic growth. Within Retail Pharmacy USA, the company is currently launching a phase of transformational cost management to counteract margin pressure. 

The company has been gaining traction from calculated tie-ups as well. We are looking forward to Walgreens Boots’ recent alliance with Alphabet’s life sciences and healthcare segment, Verily, to collaborate on multiple projects regarding chronic ailments. In the beginning, both companies are going to initiate a medication adherence pilot project that will install devices and other approaches designed to improve adherence.

Moreover, Walgreens Boots with Onduo — Verily’s joint venture with Sanofi — will unveil a virtual diabetes solution. This in turn, will cater to Walgreens Boots’ employees and family members with Type 2 diabetes via the Walgreens Boots employee health plan.

We are also looking forward to Walgreens Boots’ agreement with Express Scripts and Kroger, aimed at extending its existing group purchasing efforts and product offerings, respectively.

Per the company’s partnership with Kroger, a pilot program will be introduced at 13 selected Walgreens Boots outlets in Northern Kentucky. According to the deal, customers ordering Kroger grocery items online can pick the same up from Walgreens Boots’ outlets.

Walgreens Boots’ association with Express Scripts is expected to strengthen its existing group purchasing efforts. Since biosimilars have potential to lower production costs, the move is considered a prudent and timely one.

However, over the recent quarters, Walgreens Boots Retail Pharmacy International division remained soft. In the last reported quarter too, sales decreased 5.9%. In the United Kingdom, comparable pharmacy sales dipped 3.5% and comparable retail sales declined 2.6% in the reported quarter.

Walgreens Boots faces headwinds in the form of fierce competition and tough industry conditions. Even though the company continues to reap benefits from its growth initiatives, major business tycoons are already advancing in pharmacy businesses, flaunting a fair market share.

Notably, a slowdown in generic introduction over the last few years has been affecting Walgreens Boots' margins. Also, an escalated reimbursement pressure and a generic drug cost inflation have been denting Walgreens Boots' margins significantly.

Key Picks

Some better-ranked stocks in the broader medical space are Integer Holdings Corporation (ITGR - Free Report) , Surmodics, Inc. (SRDX - Free Report) and Veeva Systems (VEEV - Free Report) .

Integer Holdings has an earnings growth rate of 31.2% for the first quarter of 2019. The stock has a Zacks Rank #2 (Buy).

Surmodics’ long-term earnings growth rate is projected at 10%. The stock carries a Zacks Rank of 2 currently.

Veeva Systems’ long-term earnings growth rate is estimated at 19.5%. The stock sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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