Walgreens Boots Alliance (WBA) is a leading American company that operates over 13,000 pharmacy stores in the United States, UK, and other countries in Latin America.
It sells prescription drugs and other fast-moving consumer goods (FMCG) products like grooming, beauty, supplements, toys, and even groceries.
The company operates in a highly competitive industry. While CVS Health is its biggest competitor, the company also competes with other firms like Walmart, Target, and Amazon.
In the past few years, the industry has gone through numerous challenges, which explains why the stock has plunged by over 83% from its all-time high. It also explains why Rite Aid, the then third-biggest company in the industry, filed for bankruptcy.
Competition has risen, while retail theft has become common. Labor costs have also soared as more states have implemented minimum wage hikes.
Walgreens Boots Alliance stock has dropped by over 57% this year. Recently, however, it has risen by over 32% from its lowest point this year. It was trading at $11.07 on Thursday, while its HypeIndex metric jumped to 129%.
Positive hype
Walgreen’s positive hype happened because many investors believe that it has become a highly undervalued company because of the recent woes.
WBA has a forward P/E ratio of 6.21, much lower than the industry’s median of 17.8. Its trailing multiple of 3.6 is also lower than the sector median of 18.08.
The company has the second-biggest market share in the pharmacy industry in the United States, meaning that it will continue to exist as a going concern.
Walgreens reported better-than-expected financial results as its revenue jumped from $35.4 billion to $37.54 billion, signaling that there is still good demand for its pharmaceutical products.
The company has a fairly new management team that is implementing the turnaround strategy. Led by Tim Wentworth, he has taken decisive measures that have led to some short-term pain. For example, he scaled down the VillageMD business, which led to a large loss.
The CEO is also working to separate Walgreens from Boots, which it acquired in a $22 billion from Pessina and KKR.
Walgreens expects its business to start stabilizing in the new financial year. US retail pharmacy revenue is expected to be between $115 billion and $118 billion. Its international sales are expected to come between $23 billion and $24 billion, while the US Healthcare will have $9 billion in sales.
The company may benefit from the ongoing interest rate cuts, which will likely lead to more consumer spending. It will also benefit as it continues to remodel its stores in the US.
Walgreens is also lowering its costs by cutting over 1,200, a move that is expected to cut billions in costs.
Negative hype
A key source of negative hype is that the company is facing substantial competition from the likes of Hims & Hers and Mark Cuban’s Cost Plus Drugs.
Retail theft is continuing in key American states, pushing it to lock some of its products, a move that is benefiting companies like Amazon.
Its profitability is being affected by the ongoing wage growth in the US. For example, California has a minimum wage of $16 and is considering pushing it to $18.
The company slashed its dividend earlier this year, and there are chances that it will do the same in the future as it boosts its spending on remodels.
Most analysts are bearish on Walgreens, with Bank of America, Morgan Stanley, and Barclays having an underperform rating.
Walgreens stock summary
The Walgreens Boots Alliance stock has staged a strong recovery in the past few days. It has soared from a low of $8.27 in September to $11.
The stock remains below all moving averages, meaning that bears are in control for now. On the positive side, it has formed a bullish divergence pattern as the Relative Strength Index (RSI) ad the MACD have continued rising.
Therefore, this rebound could lead to more upside, with the next point to watch being at $12.40, the highest point on June 27.
If you’d like to receive more trending stocks straight to your inbox, check out our premium plans. Alternatively, if you’d like to hear more about the services offered by HypeIndex, you can check out our FAQ page.
HypeIndex is an AI platform that detects Hype in stocks and cryptos before it moves the market, providing reliable early detection for profitable investment opportunities.
Comments