It seems Amazon’s acquisition of an online pharmacy company did a lot more than just send shares of drug store stocks falling when it announced the news.
It even led to a downgrade for drug store retailer Walgreens.
Firm Jefferies has lowered its rating on Walgreens from “buy” to “hold” and also lowered their price target from $85 to $65.
The firm has forecast that there will be more investor uncertainty due to Amazon threatening drug store stocks with its acquisition of PillPack.
It was at the end of June that Amazon announced that it had signed an agreement to acquire online pharmacy PillPack.
Jefferies analyst Brian Tanquilut wrote in a note to clients a day after Amazon’s announcement, “Although we value WBA’s independence and their ongoing efforts to transition the retail pharmacy box into a HC services-orientated business, we believe recent fundamental softness makes it difficult to refute concerns about the risk AMZN brings, especially with their acquisition of mail order pharmacy PillPack. We believe that the NT earnings impact to WBA from AMZN’s acquisition of PillPack is likely immaterial, but the perception and concern that AMZN will successfully integrate PillPack into its consumer offering (1-2 years out) will likely weigh on WBA stock NT and potentially impact actual earnings performance LT.”
Baird also lowered its rating on the stock from “outperform” to “neutral” and cited that Amazon’s acquisition of PillPack would hurt investor sentiment for its shares. Baird lowered their price target from $86 to $64.
Walgreens’ CEO didn’t look too shaken up by Amazon’s announcement. He remarked about the acquisition during the company’s earnings conference call and said, “Yes, it’s a declaration of intent from Amazon, [But] the pharmacy world is much more complex than the delivery of a certain [pill or] packages.”
Walgreens also announced third quarter financial results and a $10 billion share buyback.
For the quarter, the drug store retailer reported revenue of $34.33 billion. This was ahead of the $34.05 billion that analysts had been waiting for. Net income at $1.34 billion, or $1.35 per share, was up from $1.16 billion, or $1.08 per share in the period a year ago. Adjusted earnings at $1.53 a share were five cents higher than what analysts had expected.
Raymond James analyst John Ransom remarked on the earnings report to CNBC’s “Squawk Box” and said, “Man, if you look at the same-store numbers both in the U.S. and the U.K., pharmacy was flat, retail on the front end in the U.S. was down 5 [percent], and the international retail numbers were negative. Their small wholesale division was the only division that posted positive same-store constant currency.”