Walgreens Boots Alliance (Ticker Symbol: WBAWealth Strength IndexWBA is Extremely Flat and trending Down) reported disappointing quarterly earnings and revenue that fell short of analysts’ expectations on Monday. Walgreen’s also lowered its guidance forecast for 2019 noting negative market changes that have accelerated. Walgreen’s CEO Stefano Pessina called it the “most difficult quarter since acquiring the European drugstore chain Alliance Boots” in late 2014.
Walgreen’s full-year earnings guidance for 2019 are now expected to be flat, compared to its previous growth forecast of 7% to 12% growth. The company is also cutting more that $1.5 billion in cost by the year 2020, up $500 million dollars from the last quarter. Walgreens noted that the volume of prescription fills was higher, but the company was making less money on fills. Additionally, the company sold less cold and cough products, while seeing their tobacco sales slump as well.
Walgreen’s stock spent the first and second quarter of 2018 grinding lower, before finding support just below the $60.00 price level, after gapping down 9% from negative earnings. The stock then went on a tremendous rally, reclaiming both its 100 and 200-day Moving Averages, notching in a 6-month long uptrend that rallied over 85% from its lows. Walgreen’s stock sold off and broke below the uptrend it started in December of 2018, putting in its first oversold condition in its Relative Strength Index since 2017. (Indicated on the chart by purple circles)
The start to 2019 began positively for Walgreen’s investors with its stock rallying over 11% to start the year before finding technical resistance at the 200-day Moving Average around $75.00.
Unfortunately for Walgreen’s investors, the stock took quite the tumble after taking a few downgrades from bank analysts. Walgreen’s stock ended up giving back all of its gains and then some and is currently down on the quarter. After the negative news from the earnings release, the stock gapped lower, opening down 12% from Monday’s close.
(Chart above courtesy of www.tipranks.com)
Based on a survey of six analysts offering 12-month price targets, the average price target for Walgreen’s stock is $68.17. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $56.60.
Walgreen’s is the largest standalone drug chain in the U.S. and they are currently a casualty of the many pressures that the health care and retail industries are facing. The weakness from today spilled over into Walgreens competitors dragging CVS shares lower by 3.8% and Rite Aids shares lower by over 10%. Walgreen’s shares fell by over 12%, its second worst day since 2014. Investors in the space should look forward to CVS’s earnings on May 1st for future news within the sector.