Walgreens Earnings: Disappointing Results on Tough Retail Environment Muddying Near-Term Recovery

No-moat Walgreens reported disappointing third-quarter earnings. After fully digesting those results, we are raising Walgreens' uncertainty to Very High from High, lowering our capital allocation to Poor from Standard, and lowering our fair value estimate to $23 per share from $33. Our new assessment of the firm models in continued challenges in the overall landscape, a more severe margin headwind in the US Retail Pharmacy segment, and slower growth in US Healthcare business. Reimbursement pressures from pharmacy benefit managers continue to compress profitability for the back end of the pharmacy business, and we think the retail business, which we originally thought should counteract headwinds and lift margins, will continue to struggle in the near and medium term, with the likelihood of full recovery uncertain.