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Walgreens Boots Alliance Inc (NASDAQ:WBA), the newest member of the Dow Jones Industrial Average, is "poorly positioned" within the evolving retail pharmacy space, according to Cowen.
The Analyst
Charles Rhyee downgraded Walgreens Boots Alliance from Outperform to Market Perform with a price target lowered from $77 to $71.
The Thesis
The retail pharmacy space is in the early stages of transforming from a "fee-for-service" model towards "value-based care," which implies care coordination will become more important in the future, Rhyee said in a note. Walgreens' failure to fully embrace industry shifts to remain a traditional retail pharmacy would leave it more exposed to disruption.
Instead, Rhyee said CVS Health Corp (NYSE:CVS)'s proposed merger with Aetna Inc (NYSE:AET) is a prime example of a pharmacy retailer integrating care coordination in its business through the direct ownership of Aetna. This model should generate margin improvements and market share gains for CVS at the expense of Walgreens who will be reliant on generating volume at the retail level to spur growth.
It should be noted Walgreens is showing some operational problems that may be overshadowed by earnings beats, the analyst said. Since the first quarter of 2016, the company has met consensus FIFO gross margin expectations just four times and adjusted operating income expectations only six times. The multiple misses on these metrics may signal the challenging macro environment due to continuing reimbursement pressures.
Price Action
Shares of Walgreens Boots Alliance were trading marginally higher at $65.43 Monday afternoon.
Related Links:
Drug Supply Disruption: Amazon, Walmart Reportedly Vying For Online Pharmacy PillPack
Aetna Acquisition Puts CVS Growth Prospects Back In Good Health
Image credit: Mike Mozart, Flickr
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.
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