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Walgreens Boots Alliance (WBA) is in a tough spot right now. Analysts are advising investors to reconsider holding this stock, despite its previously high dividend yield.
At the end of 2024, Walgreens announced plans to close approximately 1,200 stores over the next three years, including 500 stores in 2025. The company has been increasingly feeling the heat from discount retailers like Dollar General (DG), and the competition is eating into its bottom line.
Some analysts at Deutsche Bank are saying that even though the stock has rallied recently on news that the company is discussing a buyout with =Sycamore Partners, it might not last. T
With all this going on, investors are left questioning whether they should hold on to the stock. Walgreens used to be a reliable dividend payer, but now analysts are strongly suggesting selling it. Let’s take a closer look at how Walgreens is doing financially and what’s really causing all these problems.
Walgreens’ Financial Health Check
Walgreens Boots Alliance (WBA) is a major player in the retail and wholesale pharmacy sector, operating across 25 countries with a business model that combines retail pharmacies, pharmaceutical manufacturing, and distribution. While its global reach has always been a strength, the company’s financial health has become a growing concern for both investors and analysts.
The stock’s recent performance reflects these struggles. Over the past year, it’s dropped by 52%, although 2025 has offered a glimmer of hope with a 10% gain so far this year. Still, skepticism remains high.
Walgreens’ Q1 fiscal 2025 results show some positives, like a 7.5% year-over-year sales increase to $39.5 billion, but the company also reported a loss per share of $0.31, worse than the $0.08 loss from the same period last year.
This loss is tied to costs from its Footprint Optimization Program and adjustments on prepaid forward derivatives. Beyond these operational challenges, Walgreens is weighed down by significant debt, unresolved opioid lawsuits, and a $2.7 billion tax dispute with the IRS.
Competition is another major hurdle. Rivals like CVS Health (CVS) have overtaken Walgreens in popularity among U.S. consumers, while online players like Amazon (AMZN) are reshaping the pharmacy landscape with digital solutions that cut into margins and change how people shop for healthcare.
Valuation metrics paint a complicated picture for WBA. Walgreens’ forward P/E ratio of 7.02x is far below the sector average of 16.41x, making it look undervalued on paper. However, these figures may also reflect doubts about its future.
Analysts warn that even a potential buyout by Sycamore Partners might not help much. If anything, it could result in a “take-under,” where the buyout price ends up being lower than the current market value.
Examining WBA’s Core Drivers
Despite the gloomy outlook surrounding Walgreens, the company is taking steps to boost its growth. Recently, Grubhub announced a partnership with Walgreens. This partnership could lead to more customer engagement and frequent orders, as Grubhub’s data shows that people who shop from convenience stores order almost three times more often each month.
Growth efforts like these are critical to Walgreens’ dividend strategy. The company has suspended its quarterly cash dividend. Although this is a major blow to income investors, it seems necessary to help Walgreens turn things around and focus on long-term growth.
Before suspending its dividend, Walgreens offered a forward dividend yield of 9.58% with a payout ratio of 66.99%. The decision to suspend dividends shows that Walgreens is shifting its focus toward investing in its future, even if that means less immediate return for shareholders.
Why Deutsche Bank Is Bucking the Trend
Walgreens Boots Alliance’s outlook for 2025 isn’t exactly thrilling analysts. Out of 16 analysts covering the stock, the consensus is to “Hold” onto the stock, not buy more. Analysts have an average price target of $11.07, roughly 8% higher than its current trading price.
Deutsche Bank has gone a step further, changing their rating from “Hold” to “Sell” and dropping their target price to $9. Analysts warn that a Sycamore Partners buyout would be complicated and would fail to benefit shareholders.
The buyout plan would split Walgreens into three parts: Walgreens U.S., Boots & Europe, and other U.S. businesses like Shields and CareCentrix. But Deutsche Bank analysts think this plan is “incredibly complicated.”
Conclusion
As Walgreens navigates through its challenges, investors face a crucial decision. The company’s financial health and growth prospects remain questionable despite the allure of potential takeover talks and strategic partnerships. Deutsche Bank’s “Sell” recommendation serves as a sobering reminder that not all high-yield stocks are worth the risk. With suspended dividends, declining retail performance, and a lukewarm analyst consensus, Walgreens’ path forward appears fraught with obstacles.
Prudent investors might do well to heed the warning signs and carefully reassess their positions in this once-stalwart pharmacy giant.
