Credit Suisse Needs Better Visibility Into Walgreens Earnings Growth

Walgreens Boots Alliance Inc (NASDAQ: WBA) reported weak operating results for the fiscal first quarter. However, the company’s operating underperformance was offset by a favorable tax rate and some acceleration in cost savings, according to Credit Suisse.

The Analyst

Credit Suisse’s AJ Rice maintained a Neutral rating on Walgreens Boots Alliance, with a price target of $60.

The Thesis

Although Walgreens Boots Alliance’s quarterly performance was impacted by disappointing growth in US pharmacy script volume and competitive pressures, management maintained their full-year outlook, Rice said in the note.

He mentioned that Walgreens Boots Alliance recorded a 15% year-on-year decline in operating income, with US pharmacy script volume rising only 2.8% in the fiscal first quarter, versus the company’s full-year projection of around 4%.

The company cited competitive pressures in Medicaid and Medicare Part D as among the reasons for the disappointing performance. Management indicated that reimbursement pressures were in-line with the company’s budget and that the gross margin contraction was anticipated.

Rice also noted that management expects a reacceleration in script growth to 3.5%-4.5% in the second half of the year. He further pointed out that the company had a strong relationship with UnitedHealth Group Inc (NYSE: UNH) in the Medicare Part D space, which management believes could drive overall script growth in the year.

Price Action

Shares of Walgreens Boots Alliance were down 1.99% to $54.72 at time of publication Thursday.