Walgreens Announces Plans to Focus on Health Services

New Walgreens Boots Alliance CEO Rose Brewer said Thursday that the pharmacy chain will focus on healthcare and turn it into a “new engine of growth” for the company.

On Virtual Investor Day, she said the company’s nearly 9,000 stores in the U.S. will become places where shoppers can go to see a doctor, have medical tests, and ask a nurse or pharmacist for advice. These services will be provided by a new division of the company called Walgreens Health.

“This new Walgreens Health will make a difference and start taking us away from retail and simple pharmaceutical dispensing,” she said in an interview with CNBC’s Bertha Coombs. “It will be about the lives we manage and the lives we touch and the lives we can surround doctors and clinicians in our buildings, both physically and digitally.”

Investors proved to be receptive to Walgreens’ plan. Shares closed up 7.4% at $ 50.77 on Thursday. So far this year, stocks are up more than 29%.

Brian Tankilut, a stock market research analyst at Jefferies, said Walgreens on Thursday did what many investors wanted, explaining how it will become an active player in the healthcare industry.

“Right now, people are saying, ‘This is a smart strategy and we will give you credit,” he said.

Walgreen’s plan includes opening hundreds of primary health care clinics, changing the range of products on display, and stakes in several healthcare companies.

The company expects this strategy to pay off in the coming years. Adjusted earnings per share are expected to show steady growth on a constant currency basis next year, the report said. But growth will accelerate, so that adjusted earnings per share will grow by about 4% annually over the next three years. After fiscal 2024, the company’s growth algorithm will result in adjusted earnings per share growth from 11% to 13%.

Brewer cited the company’s fourth-quarter earnings as evidence that Walgreens is building a solid foundation.

Tankilut said Walgreens’ new vision is a notable turning point.

“You are making the pharmacy a health center,” he said. “Instead of focusing on retail, scenarios are no longer the driving force behind value. [prescriptions] from the pharmacy. In fact, it is about helping and ensuring patient loyalty to the store. “

Expansion of health services

Brewer took over at Walgreens in mid-March after serving as COO of Starbucks and CEO of Walmart’s Sam’s Club.

She said that taking care of your health is a private matter. On company investor day, she remembered the last months of her mother’s life, when her family juggled medical bills, numerous doctors and kidney dialysis visits. The experience was “incredibly confusing, cumbersome and burdensome,” she said.

She said it distracted her family from what should have been the focus: enjoying the remaining time she spent with her mom.

For so many Americans, it’s the same experience — and one that Walgreens is seeking to address by integrating primary health care with pharmacies and freeing up more staff time to help patients, she said.

A new look at shops

Over the next few years, consumers will start to see and feel a difference when they walk into nearby stores, according to Walgreens executives.

Walgreens said it will have 85 primary health care points by the end of the year. They will be called Village Medical at Walgreens. He plans to open at least 600 clinics in more than 30 U.S. markets by 2025 and 1,000 by 2027. More than half of these will be located in parts of the country that are not medically served.

In select stores and online, he will add Walgreens Health Corners. The retail space will be staffed by healthcare professionals such as nurses and pharmacists who can advise patients and help them cope with chronic conditions.

To date, Walgreens has opened 40 of them. By the end of this fiscal year, the company expects to have over 100 stores and eventually over 3,000 stores.

“Customers will be able to take other types of medical tests, such as pneumonia, streptococcus, HIV and sexually transmitted infections,” said John Standley, President of Walgreens. He said the company already has pilot projects, including HIV testing pilot projects in two states, which will grow to $ 26 million in revenue by fiscal 2024.

To free up pharmacists’ time for answering customer questions, administering vaccinations and other medical tests, Walgreens is opening centralized centers that prescribe prescriptions and deliver them to stores and homes. It already has two open centers in Dallas and Phoenix, and plans to open nine more by the end of fiscal 2022, bringing the number of pharmacies it serves to around 3,900.

At the front of the store, Brewer said in an interview with CNBC, the company’s merchandise will be “more health-oriented.” Walgreens has already seen consumers gravitate towards health-oriented supplements and beauty products, she said. She said it would add more private label products.

She told Walgreens will carefully examine the sale of tobacco. He continued to sell cigarettes even after rival company CVS Health dropped the product in 2014.

With its strategy, Walgreens is following the same path as rival CVS Health, but with one major caveat. CVS is also an insurer. It acquired Aetna in 2018 in a $ 69 billion merger. He also owns one of the largest pharmacy benefit managers, Caremark.

CVS has expanded the range of medical services it offers in pharmacies by opening emergency centers called MinuteClinics. He is transforming hundreds of his stores into HealthHubs, where people can meet with a therapist, take yoga classes, or get help managing diabetes.

Jefferies’ Tankiluth said CVS has a more holistic health strategy with Caremark, Aetna and its stores. This leads to natural interactions, he says, such as encouraging Aetna members to go to MinuteClinic for flu shots or emergency care. In addition, he said, CVS has a “first mover advantage” of transforming stores into health centers.

It has a holding rating for Walgreens with a target price of $ 53, which is about 5% higher than the stock is currently trading. It has a buy rating for CVS stock with a target price of $ 95, which is about 12% higher than the companies currently traded.

Kehoe said Thursday that Walgreens’ absence of an insurance company could benefit her. He said the company was independent of payers and focused solely on improving health outcomes. In addition, he said Walgreens will have full primary health care clinics, rather than the limited services that MinuteClinic provides.

To date, Walgreens has struck deals with Clover Health, an insurance start-up Medicare, and Blue Shield of California to provide healthcare services to more than 2 million of its members.

AJ Rice, a health care equity analyst at Credit Suisse, said Walgreens hopes that, “as Switzerland,” insurers will see it as a “preferred partner.”

He said CVS and Walgreens have a great potential to transform retail pharmacies into public health points of contact. However, he said companies need to prove they can attract clinically experienced employees and make cultural changes.

It has a neutral rating for Walgreens with a target price of $ 48, lower than where the stock is currently trading, and a higher rating for CVS with a target price of $ 100, higher than where the stock is currently trading.

Walgreens will strive to grow in other areas as well. In the United Kingdom, Boots stores have become known for their wide selection of premium makeup and beauty brands. Kehoe said store traffic increased again as the country lifted restrictions on the pandemic, making people feel more comfortable browsing the aisles and communicating.

Several of Walgreen’s beauty brands, No. 7 and Soap & Glory, are now sold by major US retailers including Target, Ulta Beauty, and Walmart. The brands’ business is currently $ 750 million and is expected to grow to $ 1 billion, Kehoe said.

Credit Suisse’s Rice said Walgreens executives also hinted at a revaluation of some of the businesses the company owns. He said investors will be watching to see if Walgreens sells assets – such as some of its international businesses – to help fund some of its U.S. healthcare growth.

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