Walgreens Faces Strategic Challenges, Analysts Are Cautiously Optimistic

Walgreens Boots Alliance Inc. WBA will report its fiscal year 2025 first quarter results on Friday, January 10.

Analysts expect the company to report adjusted earnings of 38 cents per share on revenue of $37.29 billion, according to estimates from Benzinga Pro.

JP Morgan analyst Lisa Gill writes that the focus will be on the retail pharmacy segment's performance and management comments on strategic initiatives.

The analyst maintains an Outperform rating with a price target of $15.

Recent stock volatility stemmed from a WSJ report last month that Walgreens Boots Alliance was in talks to be acquired by a private equity firm, Sycamore Partners.

JP Morgan analysts write the chances of a leveraged buyout (LBO) for Walgreens Boots Alliance are low due to the complexity of involving multiple stakeholders, including the potential separation of Boots and the sale of VillageMD.

While the idea of operating Walgreens as a private company has its merits, taking the company private is not JP Morgan's primary expectation.

Reports suggest that such a deal would likely require divesting Boots and selling VillageMD, both of which have been on the market but haven't found buyers yet.

Although Walgreens might now be more motivated to finalize these sales, past difficulties in securing buyers make it challenging to include both in an LBO.

If WBA were to go private without Boots or VillageMD, it could speed up planned store closures and cost-cutting measures.

In the fourth quarter of 2024, Walgreens announced a footprint optimization program that will target approximately 1,200 closures over the next three years.

JP Morgan expects the first quarter of 2025 to mirror challenges seen in fiscal 2024, including impacts from sale-leasebacks, reduced equity income, and weaker profit margins due to a sluggish economy.

Analysts also highlight key retail trends, shifts in consumer behavior, progress in the Healthcare segment, and updates on the planned closure of around 500 stores in 2025 as important areas to watch.

For the long term, they emphasize the need for clarity on strategic plans for assets like VillageMD and Boots, as well as the company's approach to managing debt.

Price Action: WBA stock is up 2.16% at $9.71 at the last check on Monday.

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