Baird Initiates CVS Health, Walgreens Boots Alliance At Outperform

• Baird analysts Eric W. Coldwell, Evan A. Stover and Michael K. Polark initiated coverage of Walgreens Boots Alliance Inc WBA and CVS Health Corp CVS on Thursday.
• The firm issued Outperform ratings for both companies.

In two separate reports issued Thursday, analysts at Baird initiated coverage of Walgreens Boots Alliance and CVS Health Corp with Outperform ratings and respective price targets of $96.00 and $108.00. So, what’s behind these bullish theses?

CVS Health Corp

Baird recommends CVS Health as a main large-cap holding, noting that the company is “one of the broadest and most flexible platforms in the evolving pharmaceutical supply chain.”

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Moreover, they described the execution as “crisp” and stated that they believe management will be able to continue to deliver on its 10 percent to 14 percent annual EPS growth target. Consequently, they advise “aggressively” accumulating the stock on dips. “Buying opportunities could present as 2016 growth is likely back-half weighted,” they added.

Walgreens Boots Alliance

The experts also see Walgreens Boots Alliance as “a core large-cap holding with intriguing special situation qualities.” Some of the main catalysts for the stock include:

• 1. “Continued synergy capture from Alliance Boots.”
• 2. A restructuring of retail pharmacy in the United States.
• 3. Scale from Rite Aid.

In addition, the analysts continued, behind these catalysts is a “revamped management team focused on operating discipline and more aggressive capital deployment.”

Bottom line, Baird thinks Walgreens is in the early days of a multi-year improvement cycle. Consequently, they recommend buying the stock now, ahead of 2016’s upside story and Rite Aid clarity.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.