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Walgreens Boots Alliance's (WBA) Q4 Setup 'Looks Challenging' - UBS

October 7, 2022 1:04 PM EDT
Get Alerts WBA Hot Sheet
Price: $41.50 --0%

Rating Summary:
    8 Buy, 23 Hold, 3 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 7 | Down: 16 | New: 20
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In a note to investors on Friday, UBS analyst Kevin Caliendo cut the firm's price target on Walgreens Boots Alliance (NASDAQ: WBA) to $37 from $40, maintaining a Neutral rating, telling investors the setup for the fourth quarter looks challenging while uncertainty lingers over the company's 2023 numbers.

"WBA is set to report 4Q results on 10/13 alongside a two hour presentation, prompting intrigue into the company's agenda for FY23," wrote Caliendo. "Given the disconnect for FY23 EPS between investor expectations (range of $3.50-$4.40), consensus expectations ($4.58) and management's initial $5.00 target set last year, conviction around what WBA might say is limited."

UBS' new full-year 2023 estimate, which accounts for increased macro pressures, higher UK energy costs, and higher interest rates, is now $4.20, although UBS stated various scenarios could push earnings down below $3.80.

Furthermore, UBS estimated Walgreens Boots would need to repay more than $3.5B in debt in order to maintain its investment-grade credit rating.

"In our base case, we assume a sale of 10M ABC shares, which has a net dilutive effect of $0.08. The biggest risk to WBA stock is if management decides to cut its dividend (current yield 6%) which as we detail below, could occur if management decides it needs more capital to fulfill its growth strategy," Caliendo concluded.

By Sam Boughedda



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