Deutsche Bank Initiates Hold Rating of Walgreen
Thursday, September 22, 2021 3:30 PM



Analysts at Deutsche Bank initiated Hold Rating on the shares of Walgreen Co. (NYSE: WAG) as they believe that the company has taken several initiatives to drive profitability, and divested its non-core PBM business recently. They set a price target of $38.50 for the stock.

 

DB analysts state that they are are encouraged by the improving store efficiencies of Walgreen, disciplined capital deployment strategy and improving ROIC, we believe that its ESRX contract dispute puts a significant amount of EBIT at risk. They add that Walgreen is at the cusp of several secular tailwinds, which are expected to drive drug utilization and profitability. They state that the upcoming generic wave is expected to drive profitability, with nearly $75 billion of drugs expected to go generic over the next 5 years. They add that an aging population and healthcare reform are expected to drive utilization; however they believe that reimbursement pressures could mute generic profitability. They state that the company’s management has taken several strategic initiatives to drive growth/efficiencies, including its rewiring for growth project, store remodeling increasing use of e-commerce tools, addition of new categories and increasing the penetration of store brands. They add that the company has committed to a disciplined financial strategy, and aims to drive double-digit earnings and improve ROIC by reducing new store openings, lowering inventories, increasing payout ratio to 30 to 35 percent and share repurchases. They state that the company announced that it had decided to pull out of its contract with ESRX, given the unilateral nature of terms imposed under a proposed new contract. They add that risks involving the company are an early and favorable resolution of the ESRX dispute.

 

On a year-to-date basis, Walgreen has a share performance of -5.13 percent, and as compared to Standard & Poor’s 500, it has an YTD share performance of -1.89 percent.

 

Walgreen is the largest drugstore chain in the US. It has a market capitalization of $33.46 billion with a P/E ratio of 14.440. It has more than 905 million outstanding shares.

 

Shares of Walgreen fell 2.65 percent or 97 cents to trade at $35.39.


 

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