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Steve Hockstein | Bloomberg | Getty Images
Pharmacy manager prepares a prescription at a Walgreens store.
Bank of America Merrill Lynch says investors should avoid Walgreens Boots Alliance shares as Amazon enters the pharmacy business.
Shares of drugstore companies are tumbling Thursday after Amazon announced it signed an agreement to acquire online pharmacy PillPack.
The firm lowered its rating for the drugstore chain’s shares to underperform from neutral due to declining investor sentiment.
“WBA currently is dealing with a number of business headwinds driving pressure on core script growth while also suffering from slower front-of-store growth due to a strategic pivot towards more private label/higher gross margin products,” analyst Michael Cherny said in a note to clients Thursday.
"The newly-introduced Amazon threat, even if it doesn’t have an immediate financial impact on WBA, will create longer-term competitive questions as well as uncertainty around the multiple," the analyst added. "In the interim we see WBA as particularly under pressure as it works through its partnership plans. Because of this, we expect the stock to remain range-bound (even with today’s intraday stock move)."
Rite Aid plunged 11 percent, Walgreens Boots Alliance sank 10 percent, and CVS Health fell 8 percent, respectively.
Cherny lowered his price target for Walgreens Boots Alliance shares to $60 from $73.
Walgreens Boots Alliance acknowledged Amazon's move into the online pharmacy space.
"Yes, it's a declaration of intent from Amazon," CEO Stefano Pessina said in a planned call to discuss its quarterly earnings, according to an initial 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 third-quarter earnings results and announced a $10 billion share buyback. Then the Amazon-PillPack news was released, and Walgreens shares traded sharply lower.
The company did not immediately respond to a request for comment on the Bank of America note.
