Is Walgreens Boots Alliance a Millionaire Maker?

Core Viewpoint - Walgreens Boots Alliance is facing significant challenges but is attempting a turnaround, with potential for earnings growth and an attractive dividend yield of 11% for investors [1][2]. Company Performance - Walgreens generated nearly $116 billion in revenue in 2024 but only achieved$2.1 billion in operating income, reflecting a slim margin of 1.5% [3]. - The company earned $2.88 per share in 2024, with guidance for a decline to$1.40 in 2025, but analysts project an average earnings growth of 5% annually over the next three to five years [4]. Strategic Changes - Management is actively reducing debt and costs by closing unprofitable stores, indicating a focus on improving the balance sheet [4]. - The company is shifting its business model to adapt to competition from e-commerce and mail-order services, which have pressured traditional pharmacies [4]. Valuation Metrics - Walgreens has a forward P/E ratio of approximately 6 and a PEG ratio of 1.1, suggesting that the stock is undervalued relative to expected earnings growth [5]. - The investment thesis is appealing, with potential annualized returns estimated at about 16% when considering both earnings growth and dividend yield [5]. Dividend Concerns - The current dividend of $1.00 per share represents 70% of the company's projected earnings for 2025, raising questions about its sustainability [7]. - Analysts have expressed concerns regarding the dividend during earnings calls, with management not committing to maintaining the current payout [7]. Industry Context - The traditional brick-and-mortar pharmacy model is seen as outdated, with competitors increasingly able to deliver directly to consumers [9]. - Walgreens' credit rating has been downgraded to speculative status, which may necessitate a dividend cut as the company seeks to stabilize its financials [9]. Potential Outcomes - There are reports that Walgreens is considering a sale to a private equity firm, which could require a premium over its current valuation, but substantial payoffs for shareholders are not anticipated [10]. - While Walgreens could be viewed as a deep value stock, the potential for significant upside appears limited, suggesting caution for investors [8].