Shares of Walgreens Boots Alliance (WBA) surged 27.5% on January 10, 2024, marking a significant rebound for the struggling retail pharmacy chain. While this uptick doesn’t fully recover from the massive 64% decline the stock saw last year, it represents a step in the right direction. Investors are now wondering if more gains are on the horizon for Walgreens Boots Alliance, especially with its impressive 8.5% dividend yield attracting income-focused investors.
Why Walgreens Stock Jumped
Walgreens Boots Alliance’s recent rally can be attributed to better-than-expected earnings for its fiscal first quarter ending November 30, 2024. The company reported adjusted earnings of $0.51 per share, a notable improvement over analysts’ expectations of $0.40 per share, though still well below the $1.00-plus earnings it reported a couple of years ago.
In addition to the earnings beat, Walgreens issued more optimistic forward guidance for fiscal 2025. Analysts had expected earnings per share to reach $1.58, but the company provided a forecast range of $1.40 to $1.80 per share, signaling potential for stronger performance than anticipated.
Evercore analyst Elizabeth Anderson raised her price target for Walgreens from $9 to $12 per share, citing robust results from its retail operations. However, even with this price increase, the new target is only slightly higher than the stock’s closing price of $11.75 on January 10.
Reasons for Caution
Despite the recent positive news, Walgreens Boots Alliance still faces significant challenges. The company has not effectively addressed some of the larger issues impacting the retail pharmacy sector, particularly the growing dominance of pharmacy benefits managers (PBMs). A Federal Trade Commission report revealed that three companies—CVS Health, UnitedHealth Group, and Cigna—control 79% of the prescription drug claims for 270 million people, which puts pressure on smaller players like Walgreens.
Moreover, the retail pharmacy business continues to face intense competition and pricing pressures, making it difficult for Walgreens to maintain strong margins. The company’s ability to adapt to these industry challenges and capitalize on its recent positive results will be key to sustaining the stock’s upward momentum.
Should You Buy, Sell, or Hold?
Walgreens Boots Alliance has shown encouraging signs with its latest earnings report and more optimistic guidance, which have helped drive the stock’s surge. However, investors should be cautious given the broader challenges facing the pharmacy sector, including the dominance of PBMs and increasing competition.
For those seeking high-yield dividend stocks, Walgreens may still be an attractive option given its 8.5% dividend yield. However, investors should monitor the company’s ability to address long-term industry headwinds before deciding whether to buy, sell, or hold the stock.
In summary, while the recent surge in Walgreens’ stock is a positive sign, potential investors should weigh the risks and rewards carefully as the company navigates the challenges facing the retail pharmacy industry.
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