HSBC Global Research analysts downgraded Walgreens Boots Alliance (NASDAQ:WBA) stock to Reduce from Hold and cut the target price to $20 from $27.
The move comes as WBA faces “structural headwinds in its core pharmacy business, growing pains in the healthcare segment and cash flow pressures,” prompting the broker to also lower its 2024-26 estimates and reduce its target multiple for the stock to 3.9x EVBITDA in 2024, down from 5.0x previously.
In 2024, key challenges for the retailer include reduced earnings from sale and leaseback deals, shrinking US retail margins due to increased shrinkage and an unfavorable sales mix, declining pharmacy prescription numbers coupled with reimbursement challenges offset by procurement savings, and economic pressures.
Meanwhile, potential positive catalysts include “cost savings initiatives, favourable tax rate and solid execution in high-margin pharmacy services,” analysts wrote.
“A decision to cut the quarterly dividend by 50% to USD0.25 per share in January and an additional 2% sale of its stake in Cencora for USD942m earlier this month may only provide short-term relief and may not be enough if margins and cash flow don’t stabilise soon,” the analysts noted.