Impending Headwinds Blow Walgreens Rating Down To Equal-Weight

Walgreens Boots Alliance IncWBARicky GoldwasserWalgreens Boots' stock rating from Overweight to Equal-Weight with a price target lowered from $95 to $85. Walgreens is expected to provide guidance on Oct. 25 and it will likely fall below consensus estimates, Goldwasser commented in her downgrade note (see Goldwasser's track record here). Specifically, the company could see an 11- to 14-cent headwind to its earnings per share after it was excluded from Silverscript, Envision and Aetna Medicare preferred networks. In fact, the exclusion could result in 4 to 5 million scripts shifting away from Walgreens' stores and into competitors. PBM partnerships was once core to Walgreens' bullish thesis and succeeded in driving double-digit EPS growth throughout fiscal 2017, Goldwasser continued. But now rival CVS Health Corp CVS is also offering its own preferred networks and will take over some market share within the preferred network space.

Accordingly, Walgreens' strength last year could reverse in fiscal 2018 and 2019, the analyst suggested. The company's operating income estimate for fiscal 2018 has now been lowered from $7.872 billion to $7.681 billion and 2019's estimates have also been revised from $8.388 billion to $7.991 billion.

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