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New Era Begins for Walgreens

With the addition of Boots Alliance, the firm is now a premier global retail powerhouse.

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A new era has begun at Walgreens, with the firm reporting results for the first time as the new  Walgreens Boots Alliance (WBA) global retail pharmacy. As a result, second-quarter results included a plethora of developments, and we have increased our fair value estimate to $70 per share from $58. We are incorporating increased benefits from the Alliance Boots acquisition and AmerisourceBergen drug procurement partnership. The firm's new management team has integrated the complex operations of all involved entities at a more efficient pace than we had initially expected, and we believe its tweaked restructuring plan will also provide moderately increased benefits over the long term. Additionally, we have decreased our cost of equity slightly as Walgreens' reliance on the pressured U.S. operating environment has been mitigated somewhat by its expanded global operations.

Year over year, total revenue increased 22%, driven largely by a two-month operating contribution from the Alliance Boots assets and good performance by Walgreens' U.S. operations. While total company like-for-like sales figures are skewed given the major acquisition, the domestic operations did show some solid signs of top-line improvement. Retail (front-end) sales increased a decent 2.5%, but the firm was able to drive pharmacy (back-end) revenue up an impressive 10%. Walgreens saw a major improvement in the number of prescriptions processed, which management attributed to a "strong cough, cold, and flu season." Walgreens also said it was able to increase its prescription claims market share for the quarter, which we find highly positive. We are encouraged by these results and believe the firm has an opportunity to benefit greatly from increased U.S. pharmaceutical usage.

Vishnu Lekraj does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.