4. Walgreens Boots Alliance, Inc. (NASDAQ:WBA)
Upside Potential as of August 12: 34.02%
Dividend Yield as of August 12: 9.80%
Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is an American multinational retail holding company that owns and operates retail pharmacy chains and other pharmaceutical manufacturing and distribution companies. The company faced a major setback at the beginning of 2024 when it had to reduce its dividend, ending a 47-year streak of consistent growth. This decision was made to conserve cash for supporting growth initiatives and strengthening its balance sheet. As a result, the stock dropped to new lows of around $10.68 per share and has declined by more than 60% year-to-date.
Despite recent setbacks, Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is working to recover its losses. The new CEO has announced plans to close several underperforming stores and reduce its focus on primary-care business ventures. In addition to these closures, the company aims to implement a US Retail Pharmacy action plan to improve customer and patient experiences across various channels. It will also streamline its US Healthcare portfolio and align its US pharmacy and healthcare operations to enhance market capabilities.
Ariel Investments also highlighted this in its Q1 2024 investor letter. Here is what the firm has to say about WBA:
“Alternatively, several positions weighed on performance. Shares of retail drugstore operator, Walgreens Boots Alliance, Inc. (NASDAQ:WBA), declined over the period as challenging consumer and macroeconomic conditions, ongoing operational issues and a significant cut in the dividend weighed on shares. To address these performance lows, WBA’s new CEO is rebuilding the company’s management team with leaders who have significant experience in healthcare services. Meanwhile, WBA continues to execute on its cost savings initiatives to optimize profitability and is using excess capital to prioritize the sustainability of its operations and balance sheet. Over the medium-term, we expect a re-rating in shares as the new executive team earns credibility, margins and free cash flow show signs of improvement and the company deleverages. WBA shares are currently trading at a significant discount to our estimate of private market value.”
The key question is whether these strategies are benefiting Walgreens Boots Alliance, Inc. (NASDAQ:WBA). The fiscal Q3 2024 earnings report showed that the company is dealing with a tough operating environment, with ongoing pressures on U.S. consumers and recent market dynamics negatively impacting pharmacy margins. However, the company reported revenues of $35.4 billion, a 2.6% increase from the previous year and better than expected. Its cash position was also strong, with $605 million in operating cash flow and $334 million in free cash flow, reflecting an increase of $778 million from the previous year. Despite these positive aspects, the negatives outweigh the positives, leading the company to lower its guidance for the second time this year, which has raised concerns among investors.
That said, there are hopeful signs with the new CEO and the implemented measures, even though they may take time to show results. Moreover, the company’s cash flow indicates a promising outlook for dividends, which could be further supported by cost-cutting efforts. Walgreens Boots Alliance, Inc. (NASDAQ:WBA) currently offers a quarterly dividend of $0.25 per share and has a dividend yield of 9.80%, as of August 12.
As of the close of Q1 2024, 41 hedge funds in Insider Monkey’s database held stakes in Walgreens Boots Alliance, Inc. (NASDAQ:WBA), growing from 31 in the previous quarter. The total value of these stakes is over $715 million.
