As the market landscape constantly shifts, Wall Street analysts are predicting a potential rebound for Walgreens Boots Alliance (WBA -2.66%) stock, with expectations of a staggering 30% surge.
However, amidst this optimism, some concerns and challenges loom over the pharmaceutical services leader.
This article explores the analysts’ outlook, the reasons behind their positive sentiment, the challenges faced by Walgreens, and the potential implications for the company’s stock.
Great Expectations Amidst Analysts’ Ratings
According to a survey conducted by Refinitiv, out of 24 analysts, five have rated Walgreens as a “strong buy,” while 10 recommend buying the stock. Impressively, not a single sell recommendation was given among the group.
Such consensus reflects the overall optimism among analysts regarding Walgreens’ future prospects.
Factors Driving Analysts’ Optimism
Several factors contribute to the positive sentiment surrounding Walgreens. Firstly, global consumer demand is expected to increase as COVID-19 concerns gradually diminish. Analysts believe that Walgreens is well-positioned to leverage this trend.
Additionally, industry experts anticipate that Walgreens will effectively compete against major rivals such as CVS Health and Rite Aid, according to Loop Capital. Moreover, Walgreens’ current valuation, with a forward earnings multiple of only around 6.6 times, adds to the stock’s appeal.
Challenges and Recent Performance
Walgreens has encountered challenges in recent months, as reflected in its fiscal 2023 second-quarter results. The company experienced a 20% decline in earnings per share (EPS) based on generally accepted accounting principles (GAAP).
Furthermore, non-GAAP adjusted EPS plummeted by 27%. Lower COVID-19 vaccine and testing volumes played a significant role in these declines, causing concern among some analysts.
Dividend Yield and Sustainability
One aspect that has raised questions is Walgreens’ high dividend yield, currently standing at nearly 6.2%. With a track record of 47 consecutive years of dividend increases, the company’s dividend sustainability has come under scrutiny.
Analysts from Raymond James expressed concerns that the dividend may only be supported by recurring free cash flow at a 1.2 coverage ratio.
They suggested that the dividend could be at risk in the absence of monetizable assets, calling its long-term sustainability into question.
Expert Perspectives and Long-Term Outlook
Despite differing opinions on the sustainability of Walgreens’ dividend, some analysts remain confident in the company’s ability to navigate challenges.
They believe that Walgreens’ management team will take necessary measures to ensure the continuity of dividend growth.
Furthermore, the company is expected to witness stronger growth in the second half of 2023 due to reduced reimbursement pressure in the U.S. and more favorable prior-year comparisons.
Realistic Expectations
While optimism surrounds Walgreens, it is important to evaluate the feasibility of the projected 30% stock surge within the next 12 months.
The concern primarily stems from economists’ predictions of a potential mild recession in the U.S. In the event of an economic downturn, even a company as resilient as Walgreens may face some adverse effects.
Consequently, the speed at which the stock can achieve such a significant increase may not align with the optimistic projections of Wall Street analysts.
