UBS Upgrades Walgreens Boots Alliance, Says Valuation Reflects Heightened Near-Term Risks

Although the coronavirus (COVID-19) outbreak has introduced greater near-term risks for Walgreens Boots Alliance Inc WBA, the company’s same-store sales are likely to be fairly resilient once activity levels begin returning to normal, according to UBS.

The Walgreens Analyst

UBS analyst Kevin Caliendo upgraded Walgreens Boots Alliance from Sell to Neutral, while reducing the price target from $49 to $44.

The Walgreesn Thesis

Walgreens’ current valuation reflects near-term risks and a decline in earnings, Caliendo said in the note.

Trends are unlikely to normalize before the first quarter of fiscal 2021 and may fully normalize only in fiscal 2022, the analyst said. He reduced the fiscal 2020 and 2021 earnings estimates from $5.84 per share to $5.33 per share and from $6 per share to $5.71 per share, respectively.

Caliendo said, however, that Walgreens is unlikely to experience liquidity issues in the near term, given that it has around $5.5 billion of bank liquidity available under its revolving credit facility and is negotiating with lenders to add another $750 million to that facility. On the other hand, the company doesn’t have any significant debt maturities in the near term.

The analyst expects Walgreens to maintain its dividend growth and stock buyback program.

WBA Price Action

Shares of Walgreens traded higher by 3% to $42 at time of publication.