Walgreens Boots Flips to Loss in Q3; Target $50 in Bull Case and $30 in Bear

Walgreens Boots Alliance Inc, a global retail pharmacy provider, reported a loss in the third quarter compared with a profit a year earlier, hammered by non-cash impairment charges of $2 billion in Boots UK as the ongoing COVID-19 pandemic severely impacted businesses worldwide.

The company reported an operating loss of $1.6 billion, compared to operating income of $1.2 billion a year ago; Adjusted operating income decreased 46.5% to $919 million on a reported basis, down 46.4% on a constant currency basis, the company said.

Walgreens’ loss per share was $1.95, compared to earnings per share of $1.13 a year ago; Adjusted EPS decreased 43.8% from $1.47 to $0.83, down 43.4% on a constant currency basis; Results reflected $0.61 to $0.65 per share estimated operational impact from COVID-19.

Both operating income and adjusted operating income included an adverse impact of $700 million to $750 million from the above items, or $0.61 to $0.65 per share, excluding impairment charges. Walgreens Boots Alliance Inc also announced plans to reduce 4,000 workforce at pharmacy chain Boots UK.

Executive comment

“Prior to the pandemic our financial performance for fiscal 2020 was on track with our expectations. However, this unprecedented global crisis led to a loss in the quarter as stay-at-home orders affected all of our markets. I’m very proud of how all of our teams mobilized and adapted to deliver essential services in our communities across the world,” Executive Vice Chairman and CEO Stefano Pessina said in a press release.

“Shopping patterns are evolving more rapidly than ever as consumers further embrace digital options, spurring us to accelerate our ongoing investments in digital transformation and neighbourhood health destinations. This includes our two recent announcements: a significant expansion of our primary care clinics collaboration with VillageMD, and our strategic partnership with Microsoft and Adobe to launch a personalized omnichannel healthcare and shopping experience.”

Walgreens Boots’ stock price forecast

Four analysts forecast the average price in 12 months at $47.75 with a high forecast of $50.00 and a low forecast of $45.00. The average price target represents a 12.91% increase from the last price of $42.29. All four analysts rated ‘Hold’, none rated ‘Buy’ or ‘Sell’, according to Tipranks.

Morgan Stanley target price is $45 with a high of $58 under a bull scenario and $30 under the worst-case scenario. BofA Global Research cuts price objective to $43 from $44 and Mizuho cuts target price to $48 from $53 and Cowen and Company cuts price target to $48 from $54.

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Analyst view

“Walgreens Boots Alliance operates a top 2 retail pharmacy chain in the U.S. as well as Boots Pharmacy and Alliance drug distribution in Europe. FY20 guidance calls for a turnaround in core US business but delivering on EBIT outlook relies on improving fundamentals which are out of the company’s control, including better script trends, brand inflation, and front end,” Ricky Goldwasser, equity analyst at Morgan Stanley noted in June.

“Walgreens has the balance sheet to deploy capital into M&A, as well as the strategic optionality to potentially reposition its portfolio of assets in a changing healthcare marketplace. Unveiling a new strategy that provides a roadmap to future growth is a potential catalyst for shares,” she added.