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Actionable news in WBA: WALGREENS BOOTS ALLIANCE Inc,

Walgreens Isn't Out of the Weeds Yet Even After Earnings Beat

Walgreen Boots Alliance Inc. (WBA - Get Report) reported fourth quarter earnings of $1.31 per share Wednesday morning, Oct. 25, beating Wall Street estimates of $1.21. It posted a 5.3% increase in sales, totaling $30.1 billion in the same period, also exceeding Wall Street's projection of $29.9 billion.

Walgreens also posted adjusted total earnings of $1.4 billion and operating income of $1.9 billion, as well as a $1 billion addition to its recently completed $5 billion shares buyback. Walgreens also said it would pay a regular quarterly dividend of 40 cents per share—a 6.7% uptick from the same period last year.

Shares of the Deerfield, Ill.-based company, which claims to be the largest pharmacy chain world-wide in terms of number of stores, were down slightly in mid-afternoon trading. Shares were up 4.46%, of $3 per share, to $70.29 in premarket trading but ticked only 0.74% higher in early trading on Wednesday before falling into the red.

Earnings come as investors haven't been kind to Walgreens since its $4.3 billion Rite Aid Corp. (RAD - Get Report) deal was approved by regulators in September. Couple that with rumors that Amazon.com Inc. (AMZN - Get Report) may be entering the healthcare space and you get an 18% share decline over the past two months. Amazon plans to make a decision before Thanksgiving on whether to enter the prescription drug market, CNBC reported earlier this month.

Analysts wondered prior to the earnings how the company's U.S. operations would fare, as the company has been growing share but hasn't grown margins

Leerink Partners David Larsen said in a note Wednesday morning that U.S. sales were better than expected though issues still remain in terms of international markets and wholesale operations.

Walgreens said its retail pharmacy business in the U.S.had sales of $22.3 billion, an increase of 7.5% from the same quarter last year. Comparable store sales increased 3.1% though overall retail sales decreased 3.9% percent. The company attributed this decline to the "closure of certain e-commerce operations."

"Revenue was negatively impacted by currency translation though sales decreased [0.4%, year-over-year] constant currency," wrote Larsen. "Comp store sales were down [0.2% year-over-year] on a constant currency basis," he said adding that comparable pharmacy sales in the U.K. increased 0.5% year-over-year.

"We are pleased to report the company has performed well, with our businesses delivering significant progress while managing against ongoing prescription reimbursement pressure and competing in fast-changing retail environments," CEO Stefano Pessina said in a statement.

"We look forward to building on this solid underlying growth in the year to come, enhanced by the expansion of our U.S. retail pharmacy network through the upcoming purchases of Rite Aid stores," he added.

The company may also face increased competition from CVS Health Corp. (CVS - Get Report) , which recently created 4 preferred Part D networks in tandem with UnitedHealth Group Inc.'s (UNH - Get Report) PBM unit Optum as well as Cigna Corp. (CI - Get Report) and Anthem Inc. (ANTM - Get Report) that "may drive share away from WBA," according to Larsen.

To integrate the new Rite Aid stores into Walgreens' network of over 13,200 stores, the company will spend an estimated cost of $750 million over the next three years, it announced. The pharmacy chain will pour another $500 million in capital on store conversions and relation activities.

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