Walgreens (NASDAQ:WBA) backed down violently from the $60 level after reporting weak quarterly sales. The company is in restructuring mode now and offers no growth ahead. Investors now realize integrated health firms like CVSHealth (NYSE:CVS) are better investments.
Walgreens reported revenue growing just 1.6% Y/Y to $34.34 billion. Non-EPS of $1.37 missed consensus estimates. Investors who decided to sell WBA stock last year and to buy CVS stock instead will rejoice.
CVS does not rely only on retail strength for growth. Conversely, Walgreens bought hundreds of Rite Aid (NYSE:RAD) stores. But now sales are stalling and the company must accelerate store closures, modernize locations, and find ways to grow the business.
Missing on both the top and bottom lines undermines the buyout valuation in WBA stock. Gross margin of 21.3% is likely to fall further.
The drugstore’s only business model change in the last few decades is its partnerships with PBMs (pharmacy benefit manager). CVS has a retail pharmacy, walk-in clinics, and Aetna.
Your Takeaway
Walgreens is unlikely to go private. The buyers might lower their offering price and even then, will not find banks to finance the deal. If WBA stock falls to $50 again, consider buying the stock. The dividend yield of 3.3% is modest and will limit the stock’s fall.
