Is Walgreens Boots Alliance a Millionaire Maker?

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Walgreens Boots Alliance (NASDAQ: WBA) is a family title within the healthcare trade. Shoppers in America and worldwide have frequented their neighborhood pharmacies for generations.

Nonetheless, the corporate has fallen on exhausting occasions. Clumsy efforts to broaden the enterprise scuttled the steadiness sheet and triggered a 90% decline from the inventory’s excessive.

The turnaround efforts have began. Administration is slashing debt from the steadiness sheet, and there is hope for an eventual return to earnings progress. Buyers are a beaten-down inventory with an 11% dividend yield in the present day that could possibly be a giant winner, maybe a millionaire maker if Walgreens will get again on its toes.

However is that doubtless? Or has the trade handed Walgreens by?

Walgreens Boots Alliance is likely one of the world’s largest pharmacy corporations. Sarcastically, the prescribed drugs shoppers go to a Walgreens (Boots in the UK) retailer for are merely the carrot to get them within the door. Pharmacies work on razor-thin margins, making most of their earnings by promoting retail items, meals, and drinks whereas clients go to the shops. Walgreens generated nearly $116 billion in income at its U.S. pharmacies in 2024 however made simply $2.1 billion in working revenue, a 1.5% margin.

Competitors from new sources, corresponding to mail-order and e-commerce threats, has pressured conventional pharmacies to broaden their enterprise mannequin. For instance, CVS Well being acquired medical health insurance big Aetna in 2018. Walgreens opted to broaden into care companies, an costly and acquisition-heavy endeavor that in the end ballooned its prices and steadiness sheet.

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Now, the corporate is aggressively trimming fats. Administration is deleveraging the steadiness sheet and reducing prices by closing its least-profitable shops:

Information supply: Walgreens Boots Alliance.

The worst may quickly be over. Walgreens earned $2.88 per share in 2024 and guided for a decline in 2025 earnings to $1.40 on the low finish. Nonetheless, analysts estimate the corporate will develop earnings by a mean of 5% yearly over the subsequent three to 5 years, signaling a bottoming and return to earnings progress.

Assuming Walgreens does develop earnings once more, the funding thesis is interesting at face worth.

Walgreens trades at a ahead P/E ratio of about 6 and a PEG ratio of 1.1. In different phrases, the inventory’s valuation is enticing for the corporate’s anticipated earnings progress. Buyers might hypothetically anticipate Walgreens inventory to ship funding returns on par with the corporate’s complete earnings progress and dividend yield, about 16% annualized.

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