Walgreens stock price analysis: could it go bankrupt?

on Jul 9, 2024
  • Walgreens share price has plunged to its lowest level since 1998.
  • It has dived by more than 85% from its highest level in 2015.
  • There are worries that the company could go bankrupt like Rite Aid.

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The Walgreens (NASDAQ: WBA) stock price has fallen apart. It has crashed in the past three consecutive weeks and moved to its lowest point since 1998. The stock has plunged by more than 85% from its highest point in 2015. This means that a $10,000 invested in the stock in 2015 would be worth less than $1,500. 

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Why Walgreens is imploded

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Walgreens Boots Alliance, the second-biggest pharmacy chain the US, has become a fallen angel that was recently booted from the Dow Jones index. 

This performance happened even after the company’s annual revenue rose from over $120 billion in 2017 to over $139 billion in the last financial year. While its revenue has risen, the company’s net income has moved from over $3.98 billion to a net loss of $5.8 billion in the trailing twelve months.

Most of these losses came after the company made a big $6 billion write-down of its VillageMD investment. As a result, VillageMD will now close over 160 clinics to focus on densely populated areas.

Most recently, the company is working to split its business from Boots, a deal that could value the pharmacy provider at £7 billion. The sale comes a decade after Walgreens completed its acquisition of Boots. 

There are several other reasons why the Walgreens stock price has nosedived. First, the pharmacy industry is going through major challenges because of a change of consumer behavior. Many customers have turned to newer pharmacy companies like Walmart and Amazon for their drugs. 

Second, Walgreens has continued to publish disappointing numbers that missed analysts estimates. Its most recent results showed that its sales rose slightly to $36.35 billion from $35.4 billion in the same period in 2023. Its nine-month revenue rose to $110 billion.

Store formats are changing

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For a long time, companies like Walgreens and CVS have used a simple business model. They fill prescriptions in their stores and also sell other products like toothpaste and shampoos in their stores. 

This model is no longer working amid heightened theft and lower margins as states have continued to ramp up minimum wages. As a result, margins have continued to thin in the past few years as theft has become common.

Walgreens’s gross margins have dropped to 18.38%, lower than the sector average of 35.5%. Its five-year average stood at 20.55%. Its EBITDA margin stood at 2.50%, lower than the sector median of 13.10%.

The company is now changing how its stores look. In the first place, it is focusing on smaller stores and moving most of its drugs behind a counter to reduce theft.

Will Walgreens go bankrupt?

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The ongoing Walgreens stock price implosion has raised concerns about whether the company will go bankrupt as Rite Aid did. 

I believe that Walgreens is not at risk of going bankrupt. Looking at its balance sheet, it ended the last quarter with over $711 million on cash and trading assets securities. 

It also had just $60 million in short-term investments and over $7.4 billion in long-term debt. It has a room to pay most of this debt after completing its Boots divesture either this year or in 2024. The sale will help it handle next year’s maturities worth $1.4 billion and 2026’s $2.82 billion. 

What is clear, however, is that the company will continue facing headwinds as competition rises and operational costs rose. 

Walgreens maturities

Walgreens maturities

Walgreens stock price analysis

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Walgreens stock

WBA chart by TradingView

Technically, the stock has constantly remained below all moving averages. On the weekly chart, it has dropped below the key support level at $27.67, its lowest point in October 2022 and October 2020. 

The Relative Strength Index (RSI) has moved to an extremely oversold level of 21. While this could be a sign to buy, it is also a sign that bears have the momentum. Indeed, the Average Directional Index (ADX) has risen to almost 40. Therefore, the stock could move below $10 soon.

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