Investors should ‘take the risk’ in Walgreens Boots Alliance – Cowen

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Cowen upgraded Walgreens Boots Alliance (NASDAQ:WBA) to Outperform from Market Perform, raising its price target on the stock to $54 from $43 in a research note Tuesday.

Cowen analysts told investors the stock has an attractive risk-reward, and WBA’s “transformation into a healthcare services business accelerates and op inc mix shifts away from US retail.”

“We believe this is a non-consensus call, with only 1 buy out of 18 ratings before today, as the market has largely focused on WBA’s retail exposure to an uncertain macro environment. However, while FY23 saw 80% of adj. op income from US retail (ex-ABC earnings), we expect that to fall to 66% by FY25 and continue to fall as WBA’s US Healthcare segment becomes the main growth driver for WBA,” wrote the analysts.

They added that while “execution remains a risk, particularly given the macro environment,” the company’s current valuation already discounts that risk.

“We view the risk/reward as very attractive, and believe investors should take the risk, given near-term support from 4.8% dividend yield,” the analysts added. “Key to our positive thesis is the development of WBA’s US Healthcare segment introduced a year ago. With investments in VillageMD, Shields Pharmacy, acquisition of CareCentrix, and the VillageMD/Summit Health-CityMD merger, WBA is executing on its strategy, and we are encouraged by FY25 rev targets of $14.5B-16.0B (up from $9B-10B a year ago) and expectations of seeing adj.”

In addition, Cowen still expects WBA’s performance in US retail to improve, with “potential upside to Rx trends in F2H23 from both improved staffing but also from Rx’s referred from Summit Health, which isn’t in guidance.” They also see the “tentative opioid settlement” in the US Retail Pharmacy business removing “what could have been a looming overhang.”