Walgreens is down 25% today on earnings and guidance but we feel it's an over-reaction:Â
🚢 Based on the available information and recent developments, here's a clearheaded perspective on Walgreens Boots Alliance (WBA) and its current and future valuation:
Current Situation (June 27, 2024):
1. Stock Performance: WBA is down approximately 23% today, which is a significant drop. This reaction seems to be driven by several factors:
  a) Lowered Profit Forecast: WBA has cut its fiscal 2024 profit forecast, now expecting adjusted earnings of $2.80 to $2.95 per share, down from the previous $3.20 to $3.35 range.
 b) Store Closure Plans: The company announced plans to close underperforming stores, which has been somewhat misinterpreted or overstated in some media reports.
  c) Earnings Miss: Q3 adjusted earnings of $0.63 per share fell short of the estimated $0.68 per share.
2. Valuation Metrics:
  - Current Price: ~$12.01 (after the 23% drop)
  - P/E Ratio: Based on the new earnings guidance, the forward P/E ratio is around 5.3-5.6, which is quite low and could indicate the stock is undervalued.
  - Dividend Yield: With the price drop, the dividend yield has increased (12%), making it potentially attractive for income investors - assuming they do not decide to cut it.
3. Business Outlook:
  - The company is facing challenges in its U.S. retail pharmacy segment due to reduced consumer spending and lower COVID-related product sales.
  - However, its international and U.S. healthcare segments are showing solid performance.
Your assessment that the market reaction might be an over-dramatization of the store closure plans seems reasonable. WBA is reviewing about 25% of its 8,700 stores, but this doesn't mean all these stores will close. The actual number of closures is likely to be lower.
Future Outlook (January 2026):
1. Restructuring Benefits: If executed well, the store closures and restructuring could lead to improved profitability by 2026.
