Baird Sees Struggle In Walgreens, Adds To Fresh Pick Negative List

Walgreens Boots Alliance Inc WBA plunged Friday when Baird added the stock to its "Fresh Pick Negative List."

“We think they're going to struggle with upper bounds of guidance,” analyst Eric Coldwell told Benzinga.

The Rating

Coldwell maintained a Neutral rating on Walgreens and cut its price target from $70 to $67.

The Thesis

By Baird’s assessment, Walgreens suffers fundamental misdirection and a poor market backdrop.

“WBA is advancing many new initiatives (some supportable, some dubious), but can’t change its market environment, which is universally tough,” Coldwell wrote in a note.

Citing similar challenges as CVS Health Corp CVS, he forecasts modest 2019 results on reimbursement pressures and few mitigation opportunities. At the same time, generics are expected to see less deflation than anticipated, and Baird sees threats in Brexit, Amazon.com, Inc. AMZN, unfocused management and overstaffing in the U.K. and Chile.

Still, Walgreens may enjoy modest headwinds from slower brand inflation and pharmacy reimbursement on a percent of average wholesale price.

“There’s a lot of pointing to FY20 or beyond as having better prospects (but there often seems to be a caveat once we get there),” Caldwell wrote, citing expectations for accelerated cost actions and dislocation-related pressure.

Price Action

At time of publication, Walgreens traded down 5.5 percent at $67.22 per share.

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