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Investor Sentiment For Walgreens Hitting New Lows

WBA, RADCQ, COR | October 18, 2016

Deutsche Bank said in a research note on Tuesday that investor sentiment in the drug supply chain is as bad as it can ever be. However, the firm maintains its Buy rating on Walgreens Boots Alliance Inc (NASDAQ: WBA), as it views it as one company in the drug supply chain where it expects strategy and execution to drive improvement in earnings per share.

The company is due to release its fiscal year fourth-quarter results before the markets open on Thursday.

F4Q Expectations

Analyst George Hill estimates earnings of $0.98 per share, in the middle of the implied guidance of $0.93–$1.03. Hill said he expects the results to reflect slow seasonality, exit of the Russian drug distribution business, a negative pound exchange rate and a full quarter of 15 percent ownership in AmerisourceBergen Corp. (NYSE: ABC) shares.

FY17 Guidance

While noting that investors are below-consensus on their fiscal year 2017 earnings per share estimate, Deutsche Bank is of the view that $4.85–$4.90 could be viewed with relief. Despite being positive on Walgreen's recent PBM partnerships, the firm said pricing concessions could offset volume gains in the first year. Estimating 10–15 cents contribution from Tricare pharmacy relationship in 2017 and 18 cents from a full year ownership of 24 percent of Amerisource, the firm expects 2017 earnings per share of $5.03, in line with the consensus estimate.

Focus During Conference Call

The firm believes answers will sought for questions on Rite Aid Corporation (NYSE: RAD) transaction process, drug and pharmacy pricing and the recent PBM partnerships announced by Walgreens.

As such, the firm maintains its Buy rating on the shares of the company with its price target at $94.

At last check, shares of Walgreens Boots Alliance were up 0.06 percent at $78.06.

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