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Shares of Walgreens Boots Alliance Inc. rallied Monday after J.P. Morgan turned bullish on the healthcare services and pharmacy chain, based on the expectation that the new chief executive will help remove the overhangs that have been hurting the stock.
“We believe that today commences a new era for shares of [Walgreens] as Tim Wentworth assumes the CEO role,” J.P. Morgan analyst Lisa Gill wrote in a research note to clients, in which she upgraded the stock to overweight from neutral.
Gill also raised her stock price target to $30 from $27, with the new target implying about 41% upside from Friday’s closing price of $21.26.
The stock
WBA,
jumped 3.0% ahead of the open, enough to pace the gainers in both the Dow Jones Industrial Average
DJIA
and the S&P 500 index
SPX
that were trading in the premarket.
On Friday, the stock had dropped as much as 2.3% to hit a 25-year low of $20.48 in intraday trading, before bouncing to close the day up 1.4%. The company has missed earnings expectations the past two quarters, as it has struggled with high costs, a slower-than-expected ramp of its healthcare business and a sharp drop off in COVID-19 vaccinations.
“We believe that while there is clearly work to be done, with a refreshed healthcare-focused management team and a lowered but credible bar that [Walgreens] has an opportunity to remove several overhangs in the coming quarters and improve performance,” Gill wrote.
After announcing on Sept. 1 that CEO Rosalind Brewer was stepping down after 2 1/2 years in the role, the company named Tim Wentworth as its new CEO on Oct. 11. He was most recently CEO of Cigna Group’s
CI,
health services organization Evernorth.
J.P. Morgan’s Gill said that while Walgreen’s stock has been getting cheaper for the better part of a decade, she believes the current valuation already reflects the uncertainty surrounding the company, leaving a “favorable” risk-versus-reward scenario for investors at current stock prices.
“[W]e believe that Mr. Wentworth & team can manage these near-term hurdles thus expanding the earnings multiple over time,” Gill wrote.
Out of the 16 analysts surveyed by FactSet who cover Walgreens, Gill is now just one of four who are bullish on the stock. Of the others, 11 are neutral and one is bearish.
Walgreens’ stock has tumbled 30.2% over the past three months through Friday and plunged 43.1% year to date, enough to make it the worst-performing Dow component over both those time periods. In comparison, the Dow has lost 6.0% over the past three months and inched 0.1% lower this year.
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