{"id":90943,"date":"2020-06-05T10:22:48","date_gmt":"2020-06-05T15:22:48","guid":{"rendered":"https:\/\/news.medill.northwestern.edu\/chicago\/?p=90943"},"modified":"2020-06-05T10:22:48","modified_gmt":"2020-06-05T15:22:48","slug":"walgreens-weakness-can-continue-during-painful-post-covid-recovery-analysts-say","status":"publish","type":"post","link":"https:\/\/news.medill.northwestern.edu\/chicago\/walgreens-weakness-can-continue-during-painful-post-covid-recovery-analysts-say\/","title":{"rendered":"Walgreens\u2019 weakness can continue during painful post-COVID recovery, analysts say"},"content":{"rendered":"

By Henry Ren<\/strong>
\nMedill Reports<\/em><\/p>\n

Walgreens Boots Alliance Inc. has traded near a seven-year low since executives said in early April that comparable sales started to decline due to the coronavirus pandemic, reflecting Wall Street\u2019s concerns about the company\u2019s post-shelter-in-place recovery in what is likely a recession.<\/p>\n

Walgreen\u2019s comparable sales rose 26% in the first three weeks of March as U.S. consumers stockpiled prescriptions and cleaning products, Chief Financial Officer James Kehoe said during the second-quarter earnings conference call on April 2. However, comparable sales shrank after March 21, when stay-at-home orders were enforced across the U.S.<\/p>\n

\u201cWe are confident that this is a temporary situation, and we would expect to see some stabilization of sales trends over time,\u201d Kehoe said.<\/p>\n

However, some analysts are worried that the weakness of in-store purchases may pose significant challenges to Walgreen\u2019s domestic and international sales over the coming months.<\/p>\n

<\/p>\n

\u201cIt is unclear at this point how this will trend through the rest of the third financial quarter and beyond, though we think there is a risk comps [comparable retail sales] could remain negative as COVID-19 continues to keep consumers indoors,\u201d Goldman Sachs analyst Robert Jones wrote in a note published April 3. Jones has a 52-week price target price of $41 on Walgreens\u2019s stock and a sell rating.<\/p>\n

Walgreens shares closed at $43.55 Friday, down 26% since the beginning of 2020. The stock recorded a 52-week low at $36.65 on May 14 and a 52-week high at $64.5 on Nov. 5.<\/p>\n

Walgreens partnered with Postmates for home delivery of over-the-counter medications, household essentials and convenience products, according to a March 31 press release<\/a>. The company would \u201cdramatically accelerate\u201d its digital transformation over the next six to 12 months, Kehoe said during the call.<\/p>\n

\u201cWe question whether consumers will favor using digital and mail pharmacies over brick and mortar post COVID-19,\u201d Morgan Stanley analyst Ricky Goldwasser, who rates Walgreens as equal-weight and has a 12- to 18-month price target of $49, wrote in a note to clients on April 2.<\/p>\n

The drug retailer must overcome its $22 billion of lease obligations and reassess its store footprint, along with its digital transformation, Goldwasser said in an interview.<\/p>\n

\u201cWalgreens was going through structural challenges before COVID-19 and is going to accelerate [changes] post COVID-19,\u201d Goldwasser said. \u201cThe management team has not communicated a clear strategy of how they are going to restructure the business and materialize partnerships.\u201d<\/p>\n

Charles Rhyee, an analyst at Cowen and Company, said in a May 19 note that the recent underperformance of Walgreens was “overdone,\u201d despite slashing his 52-week price target from $54 to $48.<\/p>\n

Walgreens\u2019 decline in sales of prescription medicines might be smaller than the general market and will be narrowed as patients refill prescriptions and doctors reopen offices, Rhyee said in his note.<\/p>\n

Goldwasser sees pent up demand in prescription medicines and expects the trend to continue until July. However, prescription sales can decline again in fall and winter when people curb their visits to stores for fear of a second surge in COVID-19 infection, she said in an interview.<\/p>\n

Goldwasser predicted the comparable sales of prescription medicines to increase 0.9% year-over-year domestically in the fiscal year 2021 that begins Sep. 1, 2020, lower than the actual growth rate of 2.8% and 4.9% in the first and second quarters, respectively.<\/p>\n

Walgreens\u2019 domestic prescription sales accounted for more than 55% of its annual revenue, according to the company\u2019s 2019 annual report.<\/p>\n

The expectations in lower gross margins on prescription medicines and weaker retail sales drove George Hill, an analyst at Deutsche Bank, to cut his target price on Walgreens\u2019 stock from $51 to $43 despite upgrading his rating from sell to hold.<\/p>\n

\u201cThe company has halted new product releases and has pulled back on capital expenditure projects, acknowledging that a sustained decline could erase gains from the beginning of the month [March],\u201d Hill said in his April 2 note.<\/p>\n

Walgreens\u2019 sales in the U.K., its most prominent international market, dropped around 8% in March, Kehoe said during the April 2 call. Its U.K. retail sales, not including prescription medicines, declined 65% over the last 10 days of March. Consumers shifted spending away from discretionary items such as beauty products, he said.<\/p>\n

\u201cMarch\u2019s exit trends are at all indicative of the go-forward, we\u2019d expect the international business could face significant headwinds over the coming months,\u201d Jones from Goldman Sachs said in his note.<\/p>\n

Walgreens will not update its financial guidance due to coronavirus uncertainties until its next quarterly report, possibly in late June, Kehoe said during the earnings call. The company announced<\/a> a quarterly dividend of 45.75 cents per share on April 22, unchanged from the previous quarter.<\/p>\n

Walgreens\u2019 revenues increased less than 4% in the second quarter that ended Feb. 29, marking its largest quarterly growth in the last four quarters. The Deerfield, Illinois-based company booked a better-than-expected $946 million profit, or $1.07 per diluted share in the second quarter, compared with $1.16 billion, or $1.24, in the year-ago quarter.<\/p>\n

Photo at top: A Walgreens store at Andersonville, Chicago. (Kevin Zolkiewicz<\/a>\/Flickr)<\/div>\n","protected":false},"excerpt":{"rendered":"

By Henry Ren Medill Reports Walgreens Boots Alliance Inc. has traded near a seven-year low since executives said in early April that comparable sales started to decline due to the coronavirus pandemic, reflecting Wall Street\u2019s concerns about the company\u2019s post-shelter-in-place recovery in what is likely a recession. Walgreen\u2019s comparable sales rose 26% in the first […]<\/p>\n","protected":false},"author":642,"featured_media":90945,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27,5029,5008],"tags":[192],"class_list":["post-90943","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-covid-19","category-spring-2020","tag-promo"],"yoast_head":"\nWalgreens\u2019 weakness can continue during painful post-COVID recovery, analysts say - Medill Reports Chicago<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/news.medill.northwestern.edu\/chicago\/walgreens-weakness-can-continue-during-painful-post-covid-recovery-analysts-say\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Walgreens\u2019 weakness can continue during painful post-COVID recovery, analysts say - Medill Reports Chicago\" \/>\n<meta property=\"og:description\" content=\"By Henry Ren Medill Reports Walgreens Boots Alliance Inc. has traded near a seven-year low since executives said in early April that comparable sales started to decline due to the coronavirus pandemic, reflecting Wall Street\u2019s concerns about the company\u2019s post-shelter-in-place recovery in what is likely a recession. 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