Will Walgreens' Plan for Sales Growth Work?

• Partnering with PBMs to discount drugs in order to become a preferred pharmacy in many PBM retail networks.
• Driving investment into its beauty/cosmetic operations to skew sales to higher-margin products and become a primary destination for consumers of these products.
• Acquire Rite Aid to maximize U.S. market share.

We believe there is a strong likelihood of Walgreens driving sales volume and scale through becoming a preferred PBM pharmacy and enhancing its presence in many underpenetrated regions through the acquisition of Rite Aid. If Walgreens can capture the synergies of these two tactics, it could offset secular industry headwinds. However, we are far less confident in a positive outcome for its health/beauty push. From our perspective, U.S. consumers may not view a retail pharmacy as a top destination for cosmetics where high-end specialty and department stores dominate the space.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.