Walgreens hired Starbucks COO Roz Brewer to be its next CEO. Wall Street analysts say the pharmacy giant 'absolutely nailed it' with the choice.

• Walgreens said Tuesday that it hired Starbucks COO Roz Brewer to be its next CEO.
• Most Wall Street analysts praised the choice, saying Brewer could help turn Walgreens around.
• One analyst said investors were hoping Walgreens would tap someone with healthcare experience to compete with CVS.
• Visit Business Insider's homepage for more stories.

Walgreens said Tuesday evening that Roz Brewer, the chief operating officer of Starbucks, will take the throne as its next CEO starting March 15.

The news, which was first reported by The Wall Street Journal, sent the pharmacy giant's stock soaring as high as 11% on Wednesday morning. By midday, stocks had settled back down to a 4% uptick.

Most Wall Street analysts were encouraged by Walgreens' pick.

They've been looking for the pharmacy chain to figure out its long-term strategy, and a number of analysts said Brewer has potential to put Walgreens on the right path.

Walgreens "absolutely nailed it" in choosing Brewer to lead the company forward, Baird analysts said in a research note.

Analysts generally see Brewer as someone who could bring Walgreens into the future by helping the chain deploy technology to innovate and improve customer experience. Still, one analyst questioned whether Walgreens should have tapped someone with a healthcare background to help it compete with rival CVS Health.

Some analysts are cheering on the new hire

Brewer's experience in improving customer loyalty, deploying technology, and driving innovation in stores and products is what Walgreens needs, the Baird analysts wrote.

The analysts also credited Brewer with harnessing automation to move staff away from tasks to working with customers, while getting the company to focus on what matters rather than side projects.

Likewise, Evercore ISI analysts praised Brewer for streamlining Starbucks' store operations, improving mobile order and pay work, and using labor to save costs, all of which helped to improve sales.

They're hoping she can do the same for Walgreens, where operating margins have suffered because of cuts to pharmacy reimbursement, according to an Evercore note.

Analysts at Credit Suisse wrote that Brewer "has the potential to bring a fresh set of eyes and new perspective on the various elements of Walgreens' business."

The new CEO could prompt the company to review Walgreens' penchant for joint ventures and minority investments, plus its strategy for allocating capital, Credit Suisse said.

Not all analysts were sold on Walgreens' CEO pick

Jefferies analyst Brian Tanquilut said investors were hoping the company would tap someone with healthcare experience to help Walgreens hold its own with rival CVS.

Walgreens' choice of Brewer "points to a focus Walgreens being a retailer rather than a healthcare provider, and at a time when brick-and-mortar retail is struggling, is this the right strategy?" Tanquilut said in an interview.

Walgreens has struggled to define a long-term strategy for growth against an increasingly competitive backdrop, Tanquilut said.

Companies like Amazon, which recently launched a new online pharmacy service, threaten to take customers from Walgreens. Walmart, Costco, Public, Kroger and other retailers are also gaining market share in the pharmacy space, he said.

Meanwhile, CVS has made a big push into providing care. It bought insurer Aetna in 2018 and has since beenrolling out Health Hubs in some stores to care for people with chronic illnesses in between primary-care visits. CVS also boasts 1,100 thousand MinuteClinics.

CVS also recently announced that Karen Lynch, the head of Aetna, would succeed Larry Merlo as CEO of the entire CVS enterprise.

Walgreens, which reported $424 million in net earnings in its fiscal 2020, has largely focused on striking up partnerships with other companies to help it grow.

It closed its Walgreens-run clinics back in 2019 but continued to partner with health systems to operate clinics inside its stores. It has also saddled up with Microsoft, Fedex and Labcorp in recent years.

Last year, it seemed to double back on the clinic strategy by investing $1 billion into primary-care startup VillageMD to open 500 to 700 primary care clinics in stores across the country. Still, it has only a 30% stake in the startup.

Morgan Stanley analysts had a different take. They noted that Brewer's lack of a healthcare background may be good for Walgreens.

"With COVID accelerating the consumerism and digitization of healthcare, bringing an outsider perspective may be refreshing in an industry that has been traditionally slow to change."

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