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Jefferies downgrades Walgreens shares because of Amazon’s online pharmacy acquisition

Key Points
  • Jefferies lowers its rating to hold from buy for Walgreens Boots Alliance shares, predicting more investor uncertainty due to the threat from Amazon.
  • Shares of drugstore companies plunged Thursday after Amazon announced it signed an agreement to acquire online pharmacy PillPack.
Pedestrians walk past a Walgreens store in New York.
Michael Nagle | Bloomberg | Getty Images

Jefferies is less optimistic over the prospects of Walgreens Boots Alliance due to Amazon's move into the pharmacy business.

Shares of drugstore companies plunged Thursday after Amazon announced it signed an agreement to acquire online pharmacy PillPack before the market open.

The firm lowered its rating to hold from buy on the drugstore chain’s shares, predicting more investor uncertainty due to the threat from Amazon.

“Although we value WBA's independence and their ongoing efforts to transition the retail pharmacy box into a HC services-orientated business, we believe recent fundamental softness makes it difficult to refute concerns about the risk AMZN brings, especially with their acquisition of mail order pharmacy PillPack,” analyst Brian Tanquilut said in a note to clients Friday. “We believe that the NT earnings impact to WBA from AMZN's acquisition of PillPack is likely immaterial, but the perception and concern that AMZN will successfully integrate PillPack into its consumer offering (1-2 years out) will likely weigh on WBA stock NT and potentially impact actual earnings performance LT.”

Tanquilut lowered his price target to $65 from $85 for Walgreens Boots Alliance shares, representing 9 percent upside to Thursday’s close.

Walgreens Boots Alliance acknowledged Amazon's move into the online pharmacy space during its earnings conference call with investors Thursday.

"Yes, it's a declaration of intent from Amazon," said Walgreens CEO Stefano Pessina on the call, according to a transcript from FactSet. "[But] the pharmacy world is much more complex than the delivery of a certain [pill or] packages."

Walgreens shares were down slightly more than 1 percent in Thursday's premarket session after the company reported its fiscal third-quarter earnings results and announced a $10 billion share buyback. Then the Amazon-PillPack news was released, and Walgreens shares traded sharply lower and ended the day down 9.9 percent.

In similar fashion, Baird reduced its rating to neutral from outperform on Friday for Walgreens Boots Alliance, saying the Amazon-PillPack announcement will hurt investor sentiment for its shares. The firm lowered its price target for the stock to $64 from $86.

The company did not immediately respond to a request for comment.