On Monday, UBS has adjusted its outlook on Walgreens Boots Alliance (NASDAQ:WBA), reducing the stock price target to $17 from $22, while keeping a Neutral stance on the stock. The firm's analysis indicates a potential decline compared to the consensus for retail pharmacy script growth and persistent challenges in the front-end sales.
Despite these concerns being reflected in the current stock price, there is ongoing debate among investors regarding Walgreens' ability to generate positive free cash flow (FCF) in the current fiscal year.
The revised stock price target comes amid investor discussions that highlight skepticism over Walgreens' financial performance, particularly its earnings per share (EPS) for the fiscal year 2024. The investor sentiment suggests that EPS estimates for the next year are ranging between $2.70 and $3.00, which is below the average analyst expectation of $3.08.
The concerns are primarily due to the anticipated impact of consumer macroeconomic issues and changes to Medicaid rates affecting the company's retail pharmacy business in the U.S.
UBS has also lowered its forecast for Walgreens' earnings before interest, taxes, depreciation, and amortization (EBITDA) and EPS for the fiscal year 2024 by 0.5%, mainly due to a weaker performance expected from the U.S. Retail Pharmacy sector. Furthermore, the EBITDA forecasts for fiscal years 2025 and 2026 have been decreased by 6% and 9%, respectively, based on the revised expectations for the retail pharmacy business.
The firm's updated EPS projections for Walgreens now stand at $3.07 for fiscal year 2025 and $3.34 for fiscal year 2026, a decrease from the previous estimates of $3.13 and $3.55. The adjustments to the financial forecasts and the price target reflect the challenges Walgreens may face in maintaining its profitability and cash flow in the coming years.
In other recent news, Walgreens Boots Alliance reported its second quarter 2024 earnings, with an adjusted earnings per share (EPS) of $1.20. However, the company faced a significant $5.8 billion non-cash goodwill impairment charge due to its investment in VillageMD. The adjusted EPS guidance for the full year was narrowed to $3.20 to $3.35, reflecting the tough US retail landscape.
In analyst news, Truist Securities revised its price target for Walgreens, decreasing it to $20, while maintaining its Hold rating. TD Cowen also adjusted its outlook on Walgreens, reducing the stock's price target to $35, yet retaining a Buy rating. Meanwhile, Morgan Stanley cut its price target to $20, keeping an Underweight rating on the stock.
Moreover, Walgreens' board of directors approved the issuance of a quarterly dividend of $0.25 per share, continuing a 91-year tradition of providing dividends to its shareholders. These are the recent developments concerning Walgreens Boots Alliance.
InvestingPro Insights
Amidst the concerns raised by UBS regarding Walgreens Boots Alliance's (NASDAQ:WBA) financial outlook, real-time data from InvestingPro provides additional context to investors. The company's market capitalization has adjusted to approximately $13.98 billion, reflecting the market's current valuation of the firm. Despite a challenging forecast, Walgreens has reported a revenue growth of 8.48% over the last twelve months as of Q2 2024, signaling a degree of resilience in their financial performance.
Investors might also take note of the company's dividend yield, which stands at 6.26% as of the same period, although it's important to consider the substantial dividend growth decrease of -47.92%. Moreover, Walgreens' stock is currently trading at 50.63% of its 52-week high, with the price at the previous close being $15.97. This indicates a significant variance from UBS’s price target of $17 and the InvestingPro Fair Value estimate of $19.85.
For those seeking to delve deeper into the financial health and future prospects of Walgreens, InvestingPro offers additional insights. An InvestingPro Tip suggests closely monitoring the company's next earnings date on June 27, 2024, to gauge the impact of recent strategic decisions on its financial results.
Furthermore, with the platform's Fair Value estimate slightly below UBS's price target, investors can use this information to assess the potential investment opportunity. Subscribers can find more in-depth analysis and additional tips by using the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, with a total of 7 additional tips available on InvestingPro to guide investment decisions.
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