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Understanding Changes in Walgreens Boots Alliance’s Risk Factors

Walgreens Boots Alliance (WBA) is a global retail pharmacy chain with operations in the U.S., Europe, and Latin America. The company operates a network of more than 13,000 stores. (See Top Smart Score Stocks on TipRanks)

Let’s take a look at the company’s latest financial performance, corporate updates, and changes in risk factors.

Fiscal Q4 Financial Results 

Walgreens reported revenue of $34.3 billion for its Fiscal 2021 fourth-quarter ended August 31. That compared to $30.4 billion in the same quarter last year and exceeded the consensus estimate of $33.3 million. It posted adjusted EPS of $1.17, compared to $0.91 in the same quarter last year, and beat the consensus estimate of $1.02.

For the full year of Fiscal 2021, revenue increased 8.6% to $132.5 billion and adjusted EPS rose 14.6% to $4.91. (See Walgreens Boots Alliance stock charts on TipRanks).

Corporate Updates

Walgreens has invested $5.2 billion in VillageMD to increase its stake in the value-based primary care service provider to 63% from 30% previously. VillageMD operates Village Medical clinics. The investment is intended to fuel the growth of VillageMD as it gears up for an IPO in 2022. VillageMD has opened 52 clinics at Walgreens locations. It aims to grow that to 80 clinics by the end of 2021, reach 600 clinics by 2025, and grow the network further to 1,000 clinics by 2027. VillageMD’s revenue is expected to hit $1.3 billion in 2021 from $217 million in 2017. It targets an addressable market valued at $1 trillion.

Walgreens has invested an additional $970 million in Shields Health Solutions to increase its stake in the specialty pharmacy provider to 71%. It has the option to purchase the remaining stake in the future.

Risk Factors

Walgreens carries 31 risk factors according to the new TipRanks Risk Factors tool. In its Fiscal 2021 annual report, the company introduced three new risk factors and removed seven old ones.

In a newly added risk factor, Walgreens tells investors that it is engaged in strategic initiatives to maximize shareholder value for the long term. However, it cautions that those initiatives could fail to achieve their anticipated outcomes. As a result, its business and financial condition could be adversely affected.

In another newly added risk factor, Walgreens says that it outsources certain functions to third parties. It warns that if those parties do not perform as expected, it may experience operational challenges, its costs may increase, and it could suffer reputational damage.

The third risk factor Walgreens has added relates to climate change. It warns that extreme weather conditions could adversely impact its ability to obtain goods necessary for running its business. It also warns that its expenses may increase as a result of regulations limiting greenhouse gas emissions.

Walgreens dropped the risk factor that warned that its ability to raise money through capital markets could be hampered if its credit rating gets downgraded. The company also removed the risk factor that cautioned that the growth of its privately branded products could adversely affect its relationship with vendors.

The majority of Walgreens’ risk factors fall under the Finance and Corporate category, with 31% of the total risks. That is below the sector average of 49%. Walgreens’ stock price has increased about 23% year-to-date.

Analysts’ Take

Following Walgreens’ Q4 earnings report, Truist Financial analyst David S Macdonald reiterated a Hold rating on WBA stock and raised the price target to $56 from $52. Macdonald’s new price target suggests 14.47% upside potential. The analyst noted that Walgreens’ investments should accelerate its long-term growth potential.

Consensus among analysts is a Hold based on 1 Buy and 4 Holds. The average Walgreens Boots Alliance price target of $55 implies 12.43% upside potential to current levels.

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