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Why Walgreens Boots Alliance Stock Slumped Today

By Jeremy Bowman – Updated Apr 10, 2019 at 10:16AM

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Shares of the pharmacy chain headed south on concerns about reimbursement rates.

What happened

Shares of Walgreens Boots Alliance (WBA -1.75%) were heading lower today after the drugstore chain warned about reimbursement rates at an industry conference and said its earnings guidance for the year could be challenged. The market responded by sending shares of the normally stable pharmacy stock down 6.4% at closing.

Check out the latest earnings call transcript for Walgreens.

So what

Last night, at the Leerink Partners Global Healthcare Conference, Walgreens CFO James Kehoe commented on reimbursement-rate challenges: "I wouldn't say that reimbursement is higher. What I would say is [that] the ability to mitigate it through winning more contracts, more volume, and negotiating better ... there's less than we would have expected entering the year."

A pharmacist helps an old man.

Image source: Getty Images.

That warning seemed to be enough to cast doubt on the company's ability to meet its 7% to 12% earnings growth guidance this year.  

Analysts mostly reacted negatively to the update as Baird's Eric Coldwell lowered his price target from $70 to $67 and added the stock to its "Fresh Pick Negative" list, but also maintained a neutral rating on the stock.  Leerink analyst David Larsen said in a note after the conference that the operating environment remains challenging and that reimbursement headwinds persist.

Now what 

Walgreens and the rest of the pharmacy industry face a number of challenges these days, including falling store traffic, rising drug costs, lower reimbursement rates, and even a challenge from Amazon.com after its acquisition of online pharmacy PillPack last year.

Walgreens announced a $1 billion cost-cutting program in December to answer some of those challenges, and is also forging partnerships with a number of corporations, including Kroger and FedEx. But the market continues to remain skeptical about the stock and the broader industry.

Kehoe's latest remarks did little to change that impression. 

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends FedEx. The Motley Fool has a disclosure policy.

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