Amazon Pharmacy Causes Headline Risk for Walgreens
We're maintaining Walgreens' narrow moat rating and $42 fair value estimate.
The long-awaited launch of Amazon (AMZN) Pharmacy is anticipated to create headline risk for Walgreens (WBA) in the near term. We acknowledge this to be an incremental headwind, but we view Walgreens as somewhat insulated as it remains a market leader addressing immediate care needs with ease of pickup and comprehensive offerings. We do not anticipate Amazon will garner a notable share of the market; rather, it is likely to pose a more immediate threat to dispensers of treatments for chronic conditions, such as mail order, and also to independent pharmacies, which face challenges to survive in a fiercely competitive market. Historically, Amazon’s competitive pricing on consumer products has adversely affected Walgreens' front-end sales, which have stabilized and started to improve with the latter company's aggressive rationalization of stock-keeping units and strategic initiatives.
Walgreens' strategy has focused on leveraging its partnerships to drive more traffic to its convenient locations. Through its infrastructure investments and partnerships, Walgreens has started to address more comprehensive care, including lab, imaging, and regular physician visits through its partnership with WebMD. Though it's in the early stages, this approach will allow the company to focus on outcomes longer term, which we view to be critical in improving wellness and providing differentiation in a fiercely competitive market. Additionally, convenience and ability to dispense more-complex drugs will be an important differentiator with the rise of specialty drugs that require special handling and consultations. Further, in the current market with notably low Treasury rates, Walgreens’ 4%-plus dividend yield remains an attractive consideration. We maintain our narrow moat rating and $42 fair value estimate for Walgreens.
|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.|
Soo Romanoff does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.