Walgreens Plans To Expand 700 Stores Into Primary Care Clinics

Walgreens Boots Alliance Inc. (WBA) has announced that it will be expanding the size of its care clinics by nearly 700 retail stores over the next few years.

The July 8 expansion news by Walgreens represents an overhaul of its business model from being primarily a drug pharmacy to a primary care clinic.

Walgreens says that it will still provide a vast range of retail products to customers by optimizing existing space in the store while removing all of its tobacco products. The clinics themselves will be approximately 3,300 square feet each, with some as large as 9,000 square feet.

It will include a partnership with VillageMD which will help create the clinics to provide regular treatment to patients from medical practitioners. VillageMD is a primary care service whose subsidiary Village Medical brand, provides services to patients at Walgreens at its current traditional free-standing clinics.

Walgreens CEO Stefano Pessina stated, “These clinics at our conveniently located stores are a significant step forward in creating the pharmacy of the future, meeting many essential health needs all under one roof as well as through other channels.”

Under the terms of the expansion agreement, Walgreens will invest $1 billion in equity and convertible debt in VillageMD over the next three years, including a $250 million equity investment to be completed July 8, giving WBA a 30% stake in VillageMD. The company will use 80% of Walgreens investment to fund the opening of the clinics and build upon the partnership.

This is not the first deal between the two companies. On April 10, they announced a partnership to create an online platform to connect patients with various health services. VillageMD co-founder and CMO Clive Fields said in a statement, “As we continue to work through the COVID-19 pandemic, Village Medical is dedicated to ensuring all patients continue to receive personal, accessible and coordinated care.”

Morgan Stanley analyst Ricky Goldwasser noted on July 2 that Walgreens’ competitors are already facing the impact of the COVID-19 pandemic. She said, “Geographically, about 19% of Walgreens’ store footprint is located in states that reopened in late April and only about 14% of its store base is located in regions where Rite Aid (RAD) gained share, suggesting comps for the quarter may be better than CVS’s (CVS) but not as strong as Rite Aid.” She reiterated a Hold rating on Walgreens’ stock while reducing the price target from $49 to $45 suggesting 6% upside potential.

Walgreens stock is down 28% year-to-date with a Hold analyst consensus. The $47 average price target implies 11% upside potential for the shares in the coming 12 months. (See Walgreens stock analysis on TipRanks).

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