![]() Over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. Additionally, the company’s massive buybacks, and an attractive valuation of just 7.5x expected 2020 earnings could result in a significant upside for the stock, in our view. ![]() The overall program includes multiple initiatives – from store closures to changes in IT capabilities – that will help Walgreens improve net margins going forward. This is part of Walgreens’ “The Transformational Cost Management Program,” which now aims at annual cost savings of $2.0 billion by 2022, revised from $1.0 billion when the program was first announced in Dec 2018. In fact, Walgreens is targeting as many as 200 store closures in the UK and a similar number for the US. The company is working on its store closure program which should help improve margins in the long run. Why is that? The company is carefully addressing the issues related to its international business. While these factors explain the decline in WBA’s stock price this year, we believe it could see a significant upside from the current levels. Walgreens recorded a $2 billion impairment charge for its UK business in fiscal Q3. The company’s UK business, which was already struggling to compete with online retailers that offered discounts, was a big drag in the fiscal Q3 performance (fiscal ends in August), as it accounted for 46% of the overall impact on the quarterly adjusted operating income. Though Walgreens along with other pharmacies has seen a sharp increase in home delivery orders, that business is subject to added shipping costs, as well as a tough competition from online retailers, including Amazon. The global spread of coronavirus has meant lower footfall in stores. Walgreens is not immune to the current pandemic. So what’s the likely trigger and timing to this upside?
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