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Gimme Credit reiterates underperform rating on Walgreens Boots Alliance bonds

Published 04/04/2024, 01:54 AM
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On Wednesday, the Walgreens Boots Alliance (NASDAQ:WBA) "underperform" rating on its 2030 notes, standing at T+158, was reiterated by corporate bond research firm Gimme Credit. This evaluation followed the company's recent fiscal second-quarter earnings report, which highlighted challenges within its retail operations.

The company's new CEO and CFO, reflecting on the quarter ending February 29, revised the fiscal 2024 adjusted earnings per share (EPS) guidance, explained analysts. They added that the revision involved reducing the top end of the guidance range while maintaining the bottom, effectively lowering the midpoint. The initial guidance had been considered optimistic, including various adjustments and gains from sale-leaseback transactions, as well as equity earnings from Cencora stock. Furthermore, the corporate bond research firm highlighted the significant $12.4 billion goodwill impairment charge that was added back to the VillageMD unit's results, which is part of the U.S. Healthcare segment and has only just achieved a positive EBITDA after excluding charges and stock compensation.

The impairment was attributed to lowered financial projections set by VillageMD's management in February, declining market multiples for peers, and an increased discount rate. This resulted in a considerable write-down of goodwill, leaving only $3.5 billion remaining for the segment. Additionally, a $266 million impairment of definitive-lived intangible assets for VillageMD and a $445 million write-off for an incomplete software project for U.S. Retail Pharmacy were reported.

Analysts added that despite maintaining a steady lease-adjusted debt/EBITDAR ratio at 4.3x, which is projected to slightly decrease to 4.0x by year's end, the company's financial outlook is clouded by the recent goodwill write-off, guidance adjustment, and the ongoing portfolio review, all of which amplify concerns regarding the firm's credit profile. Gimme Credit's reiterated "underperform" stance reflects these concerns.

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