Walgreen’s Boots Alliance (NASDAQ:WBA) shares are set to open lower for a fifth consecutive day as the company’s decision to close a “substantial” number of U.S. stores continues to weigh on the stock. The company was subsequently hit with a wave of price target adjustments, the latest from BofA Securities, which cut their price target in half and maintained an Underperform rating.
The bank now has an $11 price target, a 10% discount from Thursday’s closing price, already down 27% week-over-week.
The company’s vulnerable position in the pharmacy ecosystem relative to pharmacy benefit managers, or PBMs, and drug distributors should force Walgreen’s (WBA) to push back more assertively against PBMs to capture a more reasonable return on capital. But BofA is uncertain if that strategy would yield favorable results.
Additionally, the closure of Rite Aid stores and the accelerated closure of up to 25% of Walgreen’s (WBA) stores should be supportive, but pressure on the company’s gross margins and earnings power driven by structural headwinds to pharmacy reimbursement and continued weakness in general merchandise sales will remain.
The bank is lowering its FY24 and FY25 EPS outlook to $2.88 and $2.23 from $3.20 and $3.30, respectively, primarily due to lower revenue from retail at its U.S. stores. Furthermore, if profitability does not improve, BofA sees increasing risk to the current dividend.
Shares are down 1.3% in premarket trading.