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Shares of Walgreens Boots Alliance offer an attractive risk-reward to investors as the company transforms into a health-care services-focused business, according to Cowen. Analyst Charles Rhyee upgraded the stock to outperform from market perform, saying in a note to clients Tuesday that the market is largely focusing on Walgreens’ struggling retail business, which he expects to fall to only 66% of operating income by 2025. Instead, he views massive growth opportunities for the company as it ramps up investments in health care services. “While execution remains a risk, particularly given the macro environment, WBA’s current valuation already discounts this risk, with shares at only 8.7x CY23 EPS and 6.9x CY23 EBITDA,” Rhyee wrote. “We view the risk/reward as very attractive, and believe investors should take the risk, given near-term support from 4.8% dividend yield.” He expects additional upside from Walgreens’ latest health care investments and offerings, including its acquisition of CareCentrix and the addition of Summit Health following its merger with VillageMD . “We see US Healthcare representing 13% of adj. op inc in FY25 up from -2% in FY23. We expect this to accelerate EPS growth from roughly 6-8% (ex-COVID) in FY23 to 12-13% in FY25,” he wrote. Walgreens’ current valuation also takes into account the macro risks concerning some investors and weighing on analysts’ targets, he added. While Cowen trimmed adjusted earnings per share and operating income estimates for 2023 and 2024, Rhyee raised the firm’s price target to $54 a share from $43. The fresh target suggests shares could bounce 33% following a 22% tumble this year. Shares are up 11% this month and rose more than 1% before the bell Tuesday. — CNBC’s Michael Bloom contributed reporting
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