Analyst: Walgreens 'Wall of Worry' Too High to Climb

Evercore ISI weighed in on the new Dow stock after Amazon's online pharmacy purchase

Managing Editor
Jul 10, 2018 at 9:56 AM
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Shares of drug store chain Walgreens Boots Alliance Inc (NASDSAQ:WBA) are lower in early trading, after Evercore ISI downgraded the stock to "in line" from "outperform." The brokerage firm said that while it doesn't think Amazon.com (AMZN) "will emerge as a massive threat to the pharmacy overnight or even over the medium to long term" following the e-commerce giant's purchase of online pharmacy PillPack, "the current wall of worry is simply too high to climb." The analyst also cited drug pricing uncertainty and potential headwinds overseas, including Brexit volatility. WBA stock is down 1.1% at $63.03, at last check.

From a broader perspective, Walgreens shares have struggled since their late-January peak north of $80. While the stock attempted to rebound in mid-June after replacing General Electric (GE) in the Dow Jones Industrial Average, it ran into a wall at its 160-day moving average. Further, WBA gapped to a three-year low on June 28, after Amazon announced its plan to buy PillPack. The equity subsequently attempted to chip away at that gap, but is still staring up at its 80-day trendline.

Digging into options, Walgreens Boots Alliance stock sports a Schaeffer's put/call open interest ratio (SOIR) of 0.72, which ranks in the 88th percentile of its annual range. While the ratio indicates that short-term calls outnumber puts on an absolute basis, the high percentile suggests traders are more put-heavy than usual among options set to expire in three months or less.

Those currently looking to buy premium on the equity are in luck, considering it is an fairly affordable time to buy WBA options. The stock's Schaeffer's Volatility Index (SVI) of 22% registers in the 32nd percentile of its annual range. In other words, near-term options are pricing in relatively low volatility expectations at the moment.

 

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