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Should You Dump Walgreen Boots (WBA) from Your Portfolio?

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On Nov 24, 2015, we issued an updated research report on Illinois-based Walgreens Boots Alliance, Inc.WBA , which is currently the largest retail drugstore chain in the U.S. market with over 340 distribution centers across 19 countries.

Walgreens Boots reported a mixed fourth-quarter fiscal 2015 wherein earnings comfortably beat the Zacks Consensus Estimate, while the top line missed the mark. Meanwhile, generic inflation in the pharmaceutical industry continued to have an adverse effect on Walgreens Boots' store pharmacy sales, as reflected in the 250 basis point contraction experienced in the company's gross margin in the reported quarter.

Moreover, the company faces headwinds in the form of increased competition and tough industry conditions. Even though Walgreens Boots continues to grab market share from other traditional drug store retailers, major mass merchants such as Target and Wal-Mart are expanding their pharmacy businesses and enjoying a fair market share. Also, a high unemployment rate of 5.5% and rising prices of food and gas are expected to hamper the company's same-store sales growth.

On a brighter note, in late Oct 2015, Walgreens Boots announced its plans to acquire U.S. retail pharmacy chain - Rite Aid - for a total enterprise value of $17.2 billion, including acquired net debt. No doubt, the combination of these two retail giants will allow Walgreens Boots to further expand its business realm in the U.S. over the long term. Additionally, Walgreens Boots expects to realize synergies in excess of $1 billion from the deal.

Further, within nine months of the strategic combination that formed Walgreens Boots, management has been making healthy progress in its operations, as is evident from the strong fiscal fourth quarter results. Moreover, Walgreens Boots exhibited a strong balance sheet with cash and cash equivalents of $3 billion at the end of fiscal 2015, compared to $2.6 billion at the end of fiscal 2014.

Currently, Walgreens Boots carries a Zacks Rank #4 (Sell).

Key Picks in the Sector

Some better-ranked medical stocks are Hill-Rom Holdings, Inc. HRC , ICU Medical, Inc. ICUI and GW Pharmaceuticals plc GWPH . All the three stocks hold a Zacks Rank #1 (Strong Buy).

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GW PHARMA-ADR (GWPH): Free Stock Analysis Report

HILL-ROM HLDGS (HRC): Free Stock Analysis Report

ICU MEDICAL INC (ICUI): Free Stock Analysis Report

WALGREENS BAI (WBA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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