Fitch Ratings affirmed Illinois-based pharmacy chain Walgreens Boots Alliance Inc.'s ratings on the back of its strong position in the drugstore industry and bullish prospect in the U.S. pharmaceutical and general merchandise sector.
The rating agency affirmed Walgreens' long-term issuer default rating, or IDR, unsecured revolvers and unsecured bonds at BBB. Fitch also affirmed the F2 ratings on the company's short-term IDR and commercial paper. The outlook is stable.
Fitch noted that Walgreens has benefited from share gains in its U.S. pharmacy business, which accounts for about 50% of total company sales. The industry is expected to grow by 1% to 2% per year in volume and pricing, bolstered by an aging U.S. population, enrollment increases due to the Affordable Care Act and prescription price increases.
Walgreens has been working to increase its presence in the healthcare market with initiatives such as front-end enhancements that strengthen its customer relations, and cost structure opportunities such as retail footprint optimization. The Rite Aid Corp. stores acquisition builds up the company's footprint in key eastern U.S. markets and enhances Walgreens' national presence.
The full-year inclusion of the acquired Rite Aid stores could boost incremental revenue in fiscal 2019 by about $4 billion, or 3%, which could push total revenue to about $146 billion in fiscal 2021, up from the $132 billion reported in 2018, Fitch said in an Oct. 12 news release.
The pharmaceutical sector has remained resilient despite competition from discounters and online channels, Fitch said, but Amazon.com Inc. may prove an emerging threat given its acquisition of mail-order pharmacy company PillPack Inc. The online retail giant has also purchased the supermarket company Whole Foods Market Inc., which shows it could be an increasing threat for share gain in some of Walgreens' categories such as food consumables, the rating agency said.