JPMorgan Downgrades Walgreens, Says Near-Term Growth Likely To Remain Challenged

Walgreens Boots Alliance Inc (NASDAQ: WBA) is scheduled to announce its fiscal fourth-quarter results on Oct. 28.

The company is likely to record a high-single digit decline in fiscal 2019 and its adjusted operating profit growth may remain under pressure in the near term, according to JPMorgan.

The Analyst

JPMorgan’s Lisa Gill downgraded Walgreens Boots Alliance from Overweight to Neutral, establishing a price target of $63.

The Thesis

Walgreens is taking longer to realize growth under its current strategy, and Gill said there is lack of clarity into the roadmap to improvement and limited catalysts in the near term.

Management had expressed optimism in delivering mid- to high-single digit growth in adjusted earnings per share. The analyst mentioned, however, there is limited clarity into the timing and key milestones in achieving this target.

Gill expects the company to report fourth-quarter adjusted earnings at $1.41 per share, meeting the consensus estimate. While gross margins may continue to contract, focus would be on signs of the trend improving versus recent quarters.

The analyst lowered the fiscal 2020 earnings estimate from $5.98 per share to $5.93 per share. Expecting the stock to remain “a show-me story” in fiscal 2020, Gill wrote that there are “better opportunities for upside in other companies within our coverage universe at the current time.”

Price Action

Shares of Walgreens declined 1.6% to $54.43 at time of publishing on Wednesday.

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