On Monday, BofA Securities analyst Allen Lutz updated the firm's stance on Walgreens Boots Alliance (NASDAQ: NASDAQ:WBA), increasing the price target from $7.50 to $8.50 while maintaining an Underperform rating. The adjustment follows Walgreens' recent earnings report, which surpassed modest expectations.
Currently trading at $11.76, the stock remains undervalued according to InvestingPro analysis, despite showing a 26% gain year-to-date. Despite a year-over-year decline in margins, improvements are noted in the company's core margin trajectory.
Walgreens' performance in the U.S. Retail pharmacy segment showed a 13.5% year-over-year decrease in EBIT. Although such a decline is generally viewed negatively, the analyst suggests that further store closures could potentially decelerate this downward trend.
With current revenue of $150.4 billion and a gross profit margin of 17.6%, the company faces significant operational challenges. Reflecting on fiscal metrics, Walgreens' U.S. Retail Pharmacy EBIT dropped from $5.03 billion in FY22 to an anticipated $1.05 billion, as indicated by the midpoint of the current year's guidance.
The report by BofA Securities highlights the ongoing challenges Walgreens faces in gaining a clear understanding of retail pharmacy profitability. For deeper insights into Walgreens' financial health and valuation metrics, investors can access comprehensive analysis through InvestingPro, which offers exclusive ProTips and detailed financial metrics for over 1,400 US stocks. The company's ability to effectively monetize VillageMD and other assets is crucial in addressing its substantial financial obligations, which include dividends, interest payments, and opioid liabilities.
In light of these factors, the analyst reiterated the Underperform rating but raised the target multiple from 5.5x to 6.0x, acknowledging the positive shift in margin dynamics within the U.S. Retail Pharmacy sector. With a current debt-to-equity ratio of 2.75 and an overall Financial Health Score rated as "WEAK" by InvestingPro, investors should carefully consider these metrics.
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