Walgreens Stock Collapses on Weak Outlook. Is Now the Time to Buy? | The Motley Fool (2024)

The stock is now trading at levels last seen in 1998.

Share prices of Walgreens Boots Alliance (WBA -0.28%) plunged following the June 27 release of its fiscal third-quarter earnings report, with the stock having one of its worst days on record. The stock price has now fallen more than 53% since the start of 2024.

Let's look at Walgreens' most recent quarterly report, why the stock plummeted, and whether now is the time to buy.

Reduced guidance, store closures, and new plan

For its fiscal Q3 (ended in May), Walgreens saw its revenue rise 2.6% year over year to $36.4 billion. However, adjusted earnings per share (EPS) fell 36.5% to $0.63. U.S. retail pharmacy sales rose 2.3% year over year, with same-store sales up 3.5%. Comparable pharmacy sales were up 5.7%, while comparable retail sales were down 2.3%. Adjusted operating income plunged 47.9% year over year to $501 million, hurt by weak retail sales and pharmacy reimbursem*nt pressures.

International sales rose 2.8% year over year. Boots UK sales grew 1.6%, with retail same-store sales up 6% and pharmacy same-store sales up 5.8%. Adjusted operating income slid 15.8% year over year to $175 million.

Revenue from its U.S. healthcare segment rose 7.6% year over year to $2.1 billion, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $23 million, an improvement from negative $113 million a year ago. VillageMD revenue grew 7% year over year, while Shields revenue jumped 24%.

Gross margins fell to 17.8% from 18.6% a year ago. Gross margins in its U.S. retail pharmacy business fell to 17.7% from 19.1%. This shows how the company continues to get squeezed from pharmacy benefit managers over drug prices.

Walgreens generated negative $314 million in operating cash flow through the first nine months of the year and negative $1.4 billion in free cash flow. It ended the quarter with $8.9 billion in debt and $703 million in cash.

Looking ahead, the company reduced its fiscal full-year adjusted EPS outlook to $2.80 to $2.95 from a prior forecast of $3.20 to $3.35. Management expects the challenging consumer environment and muted script volume growth it is seeing to continue into 2025.

As a result, the company plans to close a "significant portion" of its 8,700 U.S. locations over the next three years, with it set to examine about 25% of its unprofitable locations. The company also said it will make investments to improve customer and patient experience, such as accelerating its digital and omnichannel offerings, building its loyalty program, and reducing the number of brands and SKUs on its shelves.

The company also plans to reduce its stake in VillageMD and no longer be its majority owner. However, it plans to keep its positions in Shields and Boots UK.

The company also remains in talks with pharmacy benefit managers (PBMs) and health issuers about creating a better reimbursem*nt system that will help stabilize its pharmacy margins and ensure fair payment.

Walgreens Stock Collapses on Weak Outlook. Is Now the Time to Buy? | The Motley Fool (1)

Image source: Getty Images.

Is this dip an opportunity to buy the stock?

Reimbursem*nt rate pressures that continue to hurt Walgreens' margins and lower profitably remain its biggest problem. Shifting to a cost-plus model, where it would get additional payments when it can help slow the inflationary costs on drug prices, would greatly benefit the company. It would also help relieve the constant drug reimbursem*nt pressure it has seen year in and year out.

However, while Walgreens is actively working with PBMs and other payers to change the model, this won't happen overnight. And the PBMs have clearly shown that they hold the upper hand.

In the meantime, it is a good idea to sell off some of its VillageMD stake, as this was a failed investment idea that stemmed from the company's previous management team. Closing unprofitable stores is also the right move. Walgreen's balance sheet is loaded with debt, so paying off debt and returning to positive free cash flow is a priority.

Trading at about a 4 times forward price-to-earnings (P/E) ratio, Walgreens finds itself in the bargain bin. However, its debt load, lack of operating cash flow generation, and weakening operating performance are reasons the stock is trading at the current levels.

Walgreens Stock Collapses on Weak Outlook. Is Now the Time to Buy? | The Motley Fool (2)

WBA PE Ratio (Forward) data by YCharts. PE Ratio = price-to-earnings ratio.

For patient investors, Walgreens is worth taking a chance on at current levels. The stock is cheap, and the company's new CEO is now looking to make his imprint on the pharmacy giant. Given its valuation, if he can stabilize its pharmacy margins and improve its cash flow profile, the company has a lot of turnaround potential. However, a turnaround is going to take a while, and as such, it may take time for investors to be rewarded for their patience.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Walgreens Stock Collapses on Weak Outlook. Is Now the Time to Buy? | The Motley Fool (2024)

FAQs

What are the predictions for Walgreens stock? ›

Average Price Target

Based on 12 Wall Street analysts offering 12 month price targets for Walgreens Boots Alliance in the last 3 months. The average price target is $13.67 with a high forecast of $22.00 and a low forecast of $9.00. The average price target represents a 26.34% change from the last price of $10.82.

Is WBA a good stock to buy now? ›

According to S&P Global Market Intelligence, the average analyst target price for WBA stock is $21.52, representing implied upside of more than 82% to current levels. Despite the significant implied upside, the consensus recommendation is a Hold.

What is the stock price forecast for WBA in 2024? ›

Walgreens Boots Stock Price Forecast 2024-2025

The forecasted Walgreens Boots price at the end of 2024 is $15.34 - and the year to year change -26%. The rise from today to year-end: +27%.

Why is Walgreens stock doing so bad? ›

Not only did Walgreens post downbeat earnings, it lowered its full-year outlook due to a challenging consumer environment. This did not bode well with the investors, and WBA stock plunged over 20% in the early hours of trading on Thursday, June 27.

What is the future of Walgreens? ›

Expect a leaner, smaller footprint

One of the things that's likely to happen over the next decade is that Walgreens becomes smaller in size. The company has a lot of physical store locations, but that means a higher level of staffing needs and resources. It also comes with more costs and challenges.

What is the highest Walgreens stock has ever been? ›

The latest closing stock price for Walgreens as of July 08, 2024 is 10.82.
  • The all-time high Walgreens stock closing price was 70.02 on August 05, 2015.
  • The Walgreens 52-week high stock price is 31.32, which is 189.5% above the current share price.

What is the future price of Walgreens stock? ›

Stock Price Forecast

The 14 analysts with 12-month price forecasts for WBA stock have an average target of 17.14, with a low estimate of 9.00 and a high estimate of 30.

What is Walgreens stock price prediction for 2025? ›

Long-Term Walgreens Boots Alliance Stock Price Predictions
YearPredictionChange
2025$ 10.42-7.47%
2026$ 9.64-14.39%
2027$ 8.92-20.79%
2028$ 8.25-26.70%
2 more rows

Is Walgreens undervalued? ›

Walgreens stock (NYSE: WBA) currently trades at $17 per share, about 70% below the level seen in April 2021, and it appears undervalued.

Who owns most of Walgreens? ›

The ownership structure of Walgreens Boots Alliance (WBA) stock is a mix of institutional, retail and individual investors. Approximately 43.95% of the company's stock is owned by Institutional Investors, 20.12% is owned by Insiders and 35.94% is owned by Public Companies and Individual Investors.

Is CVS stock a good buy? ›

CVS Health Corp has 18.72% upside potential, based on the analysts' average price target. CVS Health Corp has a consensus rating of Moderate Buy which is based on 10 buy ratings, 9 hold ratings and 0 sell ratings. The average price target for CVS Health Corp is $67.22.

How often does WBA pay dividends? ›

Regular payouts for WBA are paid quarterly.

Is Walgreens in financial trouble? ›

Walgreens said that over the first nine months of its 2024 fiscal year, its operating loss has been $13.1 billion, up from $6.4 billion in the same period in 2023. That includes a $5.8 billion noncash goodwill impairment charge related to VillageMD, the primary-care chain it owns.

What is the outlook for Walgreens stock? ›

Snapshot
Average RecommendationHold
Average Target Price13.14
Number Of Ratings20
FY Report Date8/2024
Last Quarter's Earnings0.63
6 more rows

Is Walgreens in debt? ›

Total debt on the balance sheet as of May 2024 : $32.67 B

According to Walgreens Boots Alliance's latest financial reports the company's total debt is $32.67 B. A company's total debt is the sum of all current and non-current debts.

How much will Walgreens stock cost in 2025? ›

Long-Term Walgreens Boots Alliance Stock Price Predictions
YearPredictionChange
2025$ 9.98-7.47%
2026$ 9.24-14.39%
2027$ 8.55-20.79%
2028$ 7.91-26.70%
2 more rows

How often does Walgreens pay dividends? ›

( WBA ) pays dividends on a quarterly basis.

Who owns the most Walgreens stock? ›

Walgreens Boots Alliance Stock Ownership FAQ

Stefano Pessina is the largest individual Walgreens Boots Alliance shareholder, owning 637.87M shares representing 73.89% of the company. Stefano Pessina's Walgreens Boots Alliance shares are currently valued at $6.90B.

When was Walgreens last stock split? ›

The most recent stock split occurred on February 16th, 1999.

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