Walgreens Boots Alliance Just Made $992 Million. Here’s Why That’s Not Good News.
Walgreens Boots Alliance (NASDAQ: WBA) just created a windfall of $992 million for itself, and there might be other similar paydays on the horizon. But don’t place your buy order for the stock just yet. Sometimes, making easy cash can have consequences. And this is arguably one of those times. Here’s why.
Why stacking cash is bearish
The way that businesses make money matters. There’s not much point in buying shares of an operation that’s selling off its productive assets to keep the lights on, because in the future, especially in the long term, it probably won’t be able to generate as much revenue or earnings as it did in the past.
Walgreens isn’t quite at the point of scrapping its core capabilities for short-term relief from its financial problems, but it seems to be getting closer over time.
With the company selling off $992 million worth of its stake in Cencora on Feb. 7, following another sale of $674 million late last year, investors would do well to pay careful attention to what exactly is going on and why. This move, along with a third $1.6 billion sale of Cencora shares in August of 2023, belies deeper issues that signal caution rather than opportunity.
Management says that the proceeds from the sale of these investments will go toward paying down some of the company’s staggering debt load of $34.7 billion. Liquidating marketable securities is a temporary way to offset the fact that its trailing-12-month operating income is deep in the red, with losses of more than $1 billion. Worse yet, in its fiscal first quarter, investors just saw their quarterly dividend fall by nearly half.
It’s clear that money is tight for Walgreens right now, and relief might not be in sight despite ongoing efforts to realize cost savings and reduce capital expenditures. Its new healthcare segment, which aims to provide primary-care services from its pharmacies, is anticipated to deliver adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of up to $50 million this fiscal year — or as low as losses of as much as $50 million.
The fact that management isn’t able to give shareholders a real clue about whether the segment will be reporting positive adjusted EBITDA or not isn’t a good sign — such accounting-adjusted figures are almost always more favorable to companies than non-adjusted ones.
What might improve and when?
The point of Walgreens spinning up a new healthcare segment, which competes with CVS Health, is to shore up its slow pace of top-line growth over the last five years.
The catch is that entering new lines of business typically causes profit margins to compress as companies spend on establishing market share, which is what Walgreens is in the process of doing right now. And with growth still slow, and financial flexibility increasingly constrained, the situation will likely take at least another year or so to sort itself out, assuming it does.
So the near-term setup is bearish, to say the least. Still, Walgreens has plenty of assets to sell off, including long-term equity investments like the stocks it sold recently. The market hasn’t reacted with extreme negativity to news of its sales, at least not yet. It’s feasible that within the next two years, it will return to consistent profitability and hopefully start marking some slightly faster revenue growth.
Until then, keep an eye on its operating margin. It might be recovering from its lows throughout calendar year 2024, but without a return to its pre-pandemic norm above 3%, the company will continue to be in a state of decline wherein it needs to sell assets to survive.
A major pharmacy chain like Walgreens can survive being in that state for a very long time before it collapses, but even betting for it to make a turnaround will be too uncertain until it has some evidence of such a turnaround in hand.
SPONSORED:
Should you invest $1,000 in Walgreens Boots Alliance right now?
Before you buy stock in Walgreens Boots Alliance, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Walgreens Boots Alliance wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
See the 10 stocks
*Stock Advisor returns as of February 12, 2024
Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.
News Related
-
, Nov. 28 — One of the most anticipated Android releases for 2023 has been the Google Pixel 8 lineup. The Pixel series is often considered the best of what Android has to offer since it brings the true stock Android experience. The Pixel 8 Pro was globally released on ...
See Details:
Google Pixel 8 Pro Review: Is this the best Android phone of 2023?
-
A blank space or an (NR) indicates no readings received. An (e) indicates that the water level has been estimated. An (w) indicates that the conditions were very windy, resulting in an inaccurate reading. Omatjenne Dam does not have abstraction facilities. The dam contents are according to the latest dam ...
See Details:
Namwater Dam Bulletin on Monday 27 November 2023
-
Dhaka, Nov. 27 — Nobel laureate Dr Muhammad Yunus has been appointed chair of the international advisory board of Moscow’s Financial University (under the government of the Russian Federation). On November 23, he joined a high-level strategic meeting with Prof Stanislav Prokofiev, Rector of the Financial University, and his colleagues. ...
See Details:
Dr Yunus appointed chair of Moscow Financial University's international advisory board
-
In a pivotal encounter at the International Cricket Council (ICC) Twenty20 World Cup Africa Final Monday, the Cricket Cranes faced Nigeria, knowing that a win could significantly boost their chances of securing one of the coveted tickets to the 2024 T20 World Cup in West Indies and the USA.Nigeria won ...
See Details:
Victory over Nigeria puts Uganda on the brink
-
Capture 1 The Bank Ghana (BoG) Monetary Policy Committee (MPC) has maintained the key policy rate at 30 percent, while introducing additional liquidity management measures to address excess liquidity and reinforce the disinflation process. Announcing the committee’s decision on Monday following its 115th meeting, BoG Governor Dr. Ernest Addison said ...
See Details:
BoG holds policy rate at 30%, tightens liquidity measures
-
Renita Holmes has been displaced four times in the past three years by rising rents With sea levels rising around the globe, Miami, in the US state of Florida, is facing an urgent need to adapt. As property investors turn their gaze inland, away from the exclusive low-lying beach area, ...
See Details:
When sea levels rise, so does your rent
-
Picture2 In a groundbreaking moment, Mrs. Adelaide Siaw Agyepong, CEO-American International School, has achieved yet another milestone by being crowned ‘Icon of Inspiration and Impact for the Year 2023’. The crowning achievement took place in Accra, where Mrs. Siaw Agyepong surpassed contemporaries to clinch this prestigious title at the 5th ...
See Details:
American International School CEO honoured as ‘Icon of Inspiration and Impact’
-
Freetown’s streets were almost empty on Sunday after a curfew was imposed Gunmen in Sierra Leone attacked a military barracks and freed hundreds of prisoners in a “co-ordinated and properly planned” attack, the country’s information minister has said. Sierra Leoneans spent Sunday under a nationwide curfew amid disarray in capital ...
See Details:
Sierra Leone prison breaks co-ordinated - minister
-
Freetown’s streets were almost empty on Sunday after a curfew was imposed Gunmen in Sierra Leone attacked a military barracks and freed hundreds of prisoners in a “co-ordinated and properly planned” attack, the country’s information minister has said. Sierra Leoneans spent Sunday under a nationwide curfew amid disarray in capital ...
See Details:
Address the rise of single parenthood
-
Freetown’s streets were almost empty on Sunday after a curfew was imposed Gunmen in Sierra Leone attacked a military barracks and freed hundreds of prisoners in a “co-ordinated and properly planned” attack, the country’s information minister has said. Sierra Leoneans spent Sunday under a nationwide curfew amid disarray in capital ...
See Details:
Hyundai Chief Picked as Auto Industry Leader of the Year
-
Freetown’s streets were almost empty on Sunday after a curfew was imposed Gunmen in Sierra Leone attacked a military barracks and freed hundreds of prisoners in a “co-ordinated and properly planned” attack, the country’s information minister has said. Sierra Leoneans spent Sunday under a nationwide curfew amid disarray in capital ...
See Details:
Unmarried People Under 35 Outnumber Married Ones
-
Freetown’s streets were almost empty on Sunday after a curfew was imposed Gunmen in Sierra Leone attacked a military barracks and freed hundreds of prisoners in a “co-ordinated and properly planned” attack, the country’s information minister has said. Sierra Leoneans spent Sunday under a nationwide curfew amid disarray in capital ...
See Details:
European interior ministers in Hungary to discuss migration
-
Freetown’s streets were almost empty on Sunday after a curfew was imposed Gunmen in Sierra Leone attacked a military barracks and freed hundreds of prisoners in a “co-ordinated and properly planned” attack, the country’s information minister has said. Sierra Leoneans spent Sunday under a nationwide curfew amid disarray in capital ...
See Details:
Japan on the watch for unlicensed taxis around Narita airport amid foreign tourism spike
-
Freetown’s streets were almost empty on Sunday after a curfew was imposed Gunmen in Sierra Leone attacked a military barracks and freed hundreds of prisoners in a “co-ordinated and properly planned” attack, the country’s information minister has said. Sierra Leoneans spent Sunday under a nationwide curfew amid disarray in capital ...
See Details:
ECOWAS to send high-powered delegation on solidarity visit to Sierra Leone
OTHER NEWS
Despite doing education at the university, Mellon Kenyangi, also known as Mama Bear, did not think of going to class, and teaching students was her dream job.“Since it was not ...
Read more »
213 Sri Lanka Cricket’s Chairman of Selectors, Pramodya Wickramasinghe reported to the Sports Ministry’s Special Investigation Unit( SMSIU) for the Prevention of Sports Offences yesterday for the second day. He ...
Read more »
137 Malindu Dairy (Pvt) Ltd., a leading food production company in Sri Lanka, won the Silver Award in the medium-scale dairy and associated products category at the Industrial Excellence Awards ...
Read more »
Africans Urged to Invest Among themselves, Explore Investment Opportunities in Continent Addis Ababa, November 27/2023(ENA)-The Embassy of Angola in Ethiopia has organized lecture on the “Foreign Investment Opportunities in Angola ...
Read more »
144 The dynamic front row player Mohan Wimalaratne will lead the Police Sports Club Rugby team at the upcoming Nippon Paint Sri Lanka Rugby Major League XV-a-side Rugby Tournament scheduled ...
Read more »
Dozens of people living with disabilities from New Hope Inclusive in Entumbane, Bulawayo on Saturday last week received an early Christmas gift in the form of groceries. The groceries were ...
Read more »
The East African Community (EAC) Summit of Heads of State has admitted the Federal Republic of Somalia to the regional bloc, making it its 8th member country. The decision was ...
Read more »