Yahoo Finance Walgreens Stock Lashed as Investors Left With ‘Nothing to Go On’
(Bloomberg) -- Walgreens Boots Alliance Inc. shares capped off their worst month in more than five years as the troubled drugstore chain navigates a difficult turnaround that has caused investors to flee the stock.
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The shares slid 18% in April hovering near the lowest level in nearly 26 years after the company cut its outlook while pointing to reduced consumer spending and revealing that the IRS is seeking to clawback $2.7 billion in unpaid taxes.
Shares have notched losses in all but one of the past eight years as the company grapples with high debt after an acquisition spree. But, Walgreens is betting a strategic review of its businesses can win back investors’ confidence in the stock and restore growth.
“The market has almost given up on this company given how long some of the challenges have remained,” said Shams Afzal, a portfolio manager at Carnegie Investment Counsel. “The stock price is absolutely reflecting all of these pressures.”
Management changes have plagued the company with Roz Brewer, the former chief executive officer, departing nearly eight months ago after efforts to push deeper into health care during her tenure proved more challenging than expected. The stock lost roughly half its value during her tenure.
Walgreens declined to comment.
The Deerfield, Illinois-based company has also had to replace its chief financial officer, chief information officer and chief medical officer in the past year.
Read more: Walgreens Replaces Chief Medical Officer in Latest Shakeup
The company is reportedly holding new talks to separate from Boots, its UK pharmacy chain, and exploring options for Shields Health Solutions, its specialty pharmacy business.
But, Wall Street is treating Walgreens as a wait-and-see story. Twelve of the analysts covering the stock rate it a hold with three saying buy and four recommending selling shares, according to Bloomberg compiled data.
Walgreens’ valuation premium at a five-year average of about six times forward earnings, is among the bottom 10 of the companies in the S&P 500, and another indicator of the Street’s skepticism.
“Right now we have nothing to go on,” Afzal said. “It’s a whole lot of promises and almost a kitchen sink strategy, if you will, but we haven’t seen any turnaround yet.”
For Barclays analyst Stephanie Davis, there are few outcomes from the strategic review that could put Walgreens back on the right path.
If the company decides to monetize its outperforming assets, then it loses the “good parts” of its business, according to Davis. A sale of its underperforming assets on the other hand, could mean selling at a discount.
“There’s no easy solution that they can come up with in this turnaround that would make me feel 100% good about the outcome,” said Davis, who currently rates the stock a sell-equivalent.
What the stock really needs is a turnaround in the firm’s patient-care business in the US, Davis added.
Other companies’ expansion into the market has not gone well. On Tuesday, Walmart Inc. said it was closing its primary-care clinics.
Read more: Walmart Closes Health Centers, Telehealth Unit as Costs Rise
The pharmacy chain continues to muscle through a $1 billion cost-cutting program, targeting unprofitable locations and halting nonessential projects.
For Evercore ISI analyst Elizabeth Anderson, improving US drugstores is what is most likely to boost the firm’s stock price. An advance there could help drive the stock up some 20% from current levels, the analyst wrote in a note to clients.
“While we expect some additional news flow in the coming months regarding potential portfolio changes, we are most focused on any changes to the underlying profit trajectory in the US retail pharmacy business,” said Anderson, who has an in-line rating on the stock.
Barclays’ Davis sees competition mounting on all sides, including from retail giants, grocers with pharmacies and online drug delivery services.
“You have big box stores being a bigger threat,” Davis said. “The online pharmacy threat, it will eventually grow as well.”
“It’s kind of the big question of what they want to be when they grow up,” Davis said of the strategic review. “What businesses do you keep, what businesses do you not keep?”
--With assistance from Fiona Rutherford.
(Updates with closing prices.)
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