Pfizer and Eli Lilly’s new moves intensify Walgreens’ struggles

Walgreens Boots Alliance Inc. (NASDAQ: WBA) has endured a dramatic decline in its stock value, plummeting over 65% this year.

The company’s challenges are intensifying, with new competitive pressures from pharmaceutical giants Pfizer Inc. (NYSE: PFE) and Eli Lilly & Co. (NYSE: LLY).

Both companies have launched strategies that could significantly impact Walgreens’ traditional retail and pharmacy operations.

This week, Pfizer unveiled “PfizerForAll,” a telehealth and eCommerce platform designed to streamline access to healthcare services.

This new initiative poses a direct threat to Walgreens’ traditional clinic model.

Pfizer’s platform offers virtual health services and direct-to-consumer drug delivery, which could lead to reduced foot traffic at Walgreens clinics.

Additionally, patients who use PfizerForAll will benefit from home delivery of Pfizer medications, potentially eroding Walgreens’ retail pharmacy sales.

Eli Lilly could weigh on Walgreens sales

On the other hand, Eli Lilly & Co (NYSE: LLY) is not making things any easier for Walgreens either.

The pharmaceutical behemoth recently confirmed that consumers can relish a 50% discount on its world-famous weight-loss drug Zepbound if it’s ordered directly from the company’s eCommerce platform.

The update from Lilly will make many switches to its online platform which will further cut into WBA’s retail pharmacy sales.

The above developments will likely weigh broadly on Walgreens’ sales and its margin profile. That may be the reason why Wall Street currently rates the Nasdaq-listed firm at “hold” only.

Is Walgreens stock a value trap?

What’s still attractive about Walgreens stock is a lucrative dividend yield of 10.58%. However, there have been concerns related to its sustainability considering the multinational continues to struggle with profitability.

The company had a negative free cash flow of $1.1 billion in the first nine months of 2024.  That’s why WBA slashed its dividend by almost 50% in June.

Walgreens stock is trading at about 6 times its trailing earnings it may look cheap. But the above challenges, put together, explain why investors may be better off treating it as a classic value trap.

While WBA may look inexpensive to own in writing, it may not in a year or two particularly if its financials continue to deteriorate. The widespread lack of stability in its business, therefore, makes the stock ill-suited unless you have an unusually high-risk tolerance.