Shares of Walgreens Boots Alliance (WBA, Financial) dropped 6.89% today, reflecting market concerns over rising competition. Despite a brief post-earnings rally, investor sentiment shifted following a major competitor's new service announcement.
Walgreens initially experienced a positive reaction due to better-than-expected earnings and a promising 2025 outlook. However, the recent announcement by competitor Walmart (WMT) to expand its same-day prescription delivery service to six states and implement nationwide availability by January disrupted investor confidence.
This development highlights the competitive challenges faced by Walgreens, as traditional pharmacies are increasingly pressured by tech-savvy players such as Walmart and Amazon. These companies utilize existing loyalty programs like Walmart+ and Amazon Prime to penetrate the pharmacy market, providing the added convenience of delivering a wide range of products alongside prescriptions.
In response to these pressures, Walgreens has announced plans to close 1,200 stores to streamline its retail footprint and modernize its operations. Despite these initiatives, the persistent threat from online competitors continues to pose risks, potentially reducing foot traffic and adversely impacting in-store sales of non-prescription items.
From a stock valuation perspective, Walgreens Boots Alliance (WBA, Financial) is facing several financial challenges, as evidenced by a troubling Altman Z-score of 1.62, which indicates financial distress. The company's gross margin has been declining at an average annual rate of -4.5%. Furthermore, its long-term debt issuance remains high, amounting to USD 1.8 billion over the past three years.
Conversely, the Beneish M-Score suggests that Walgreens is unlikely to be engaged in financial manipulation, with a value of -2.34. Despite some positive financial health metrics, Walgreens' GF Value is pegged at $36.23, significantly higher than the current stock price of $9.73, suggesting potential undervaluation. However, caution is advised, as it is considered a "possible value trap" (GF Value).
The stock's low price-to-book ratio of 0.8 and a yield of 12.63% may attract income-focused investors. However, given the challenges, potential bankruptcy risks, and the negative outlook in operating income, further scrutiny is warranted for those considering an entry into WBA.
