Walgreens management has just flashed a warning sign for next year, and Deutsche Bank thinks investors should steer clear of the stock. The bank downgraded the pharmacy stock to hold from buy on Wednesday and lowered its price target to $34 a share from $46. Deutsche Bank’s new forecast implies up about 19% from Tuesday’s close. Analyst George Hill said a Tuesday call from company management downgrading both the fiscal fourth quarter and preliminary 2024 guidance supported the downgrade. WBA YTD Mountain Walgreens shares are down more than 23% year-to-date. “There were so many issues on the WBA call that it’s hard to pinpoint one issue as a source of concern,” Hill said. “Perhaps the most striking concern was the reduced guidance for the company’s burgeoning healthcare segment, which was expected to turn to profitability at F3Q.” Hill noted that Walgreens now expects adjusted EBITDA for fiscal 2023 with a loss of between $340 million and $380 million. The company’s previous guidance called for a profit at the high end of the range. “In the retail pharmacy segment, while core earnings performance improved, the old lows, including reimbursement pressure and operational challenges that we thought were behind us, are again weighing on the outlook for F2024,” he said. Walgreens also cut its fiscal fourth-quarter earnings guidance and reported weaker-than-expected fiscal third-quarter profit. Shares fell more than 9% on Tuesday, their biggest one-day loss since November 2020. “Now we see a risk to the F2024 outlook in the company that has incorporated 10mm covid vaccines into its guidance, as well as a sharp increase in profitability from the healthcare segment where we are now less confident and see other potential profit sources falling short,” Hill said. — CNBC’s Michael Bloom contributed to this report.
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