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Walgreens' Weak Market Trends a Woe, Strategic Deals to Aid

Zacks Equity Research

On Apr 9, we issued an updated research report on Walgreens Boots Alliance, Inc. WBA. The company faces headwinds in the form of fierce competition and tough industry conditions. However, at the same time, it consistently reaps benefits from its growth initiatives and major business tie-ups. The stock carries a Zacks Rank #4 (Sell).

Walgreens Boots reported dismal second-quarter fiscal 2019 results, mainly due to disturbance in the U.S. and UK consumer markets, lower generic deflation, soft brand inflation and higher reimbursement pressure. The company anticipates these pharmacy trends, which are impacting the overall market, to persist over the coming months.

Accordingly, it has lowered its fiscal 2019 adjusted EPS growth expectations. Over the past month, shares of the company have underperformed its industry. The stock has declined 10.2%, wider than the industry’s 1.3% fall.

On a positive note, in the reported quarter, the Retail Pharmacy USA division saw comparable prescription growth and benefited from a strong retail prescription market. Within this segment, Walgreens Boots has been making a good progress owing to its expanding prescription volumes.

The company is currently making concerted efforts to fix specific areas of operational weakness and is bolstering its managerial efficiency to improve operational excellence with a deepened focus.

The company has been gaining traction from strategic tie-ups as well. We are looking forward to Walgreens Boots’ recent alliance with Alphabet’s life sciences and healthcare segment — Verily — to coordinate on multiple projects related to chronic ailments. Also, the company’s collaborations with Express Scripts and Kroger are aimed to expand its existing group purchasing efforts and product offerings, respectively.

Key Picks

Some better-ranked stocks in the broader medical space are Stryker Corporation SYK, Penumbra, Inc. PEN and Amedisys, Inc AMED, each stock currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker’s long-term earnings growth rate is projected at 10%

Penumbra’s long-term earnings growth rate is estimated at 20.9%.

Amedisys’s long-term earnings growth rate is forecast at 19.7%.

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