Walgreens Boots Alliance: A Possible Restart?

The stock of Walgreens Boots Alliance has lost over 80% of its value in the past three years. Investors are likely eager for a radical change in the business, and rumors suggest that this might happen soon, which would have far-reaching implications for all shareholders. The question of whether it is worthwhile to buy this stock is intriguing. A look at the potential of such a change could provide insight. First, it is worth taking a closer look at the current state of Walgreens. The diluted TTM earnings per share have fallen by nearly 1% over the past five years and amount to $3.77. In the most recent quarter, the fourth quarter of the fiscal year, management blamed a variety of factors, such as pricing pressure from health insurers and a weak retail environment in the U.S. However, these problems did not occur between the end of 2022 and mid-2023, a period during which Walgreens recorded losses instead of gains. To address declining margins in the core pharmacy sector, the company was able to realize over $1 billion in cost savings for the 2024 fiscal year and reduce capital expenditures by $600 million. Additionally, the company plans to close about 1,200 pharmacies over the next three years, including 500 already by 2025. While these measures might improve the balance sheet, the effect will not be immediately noticeable, and they will also result in revenue losses. Thus, Walgreens is likely to be smaller in the near future but also more robust than it is currently. The company is also burdened by long-term debt of $28.9 billion. Despite repaying $30.4 billion in long-term debt during the TTM period, it also took on an additional $31.3 billion, resulting in an overall increase in net debt. The debt-to-equity ratio stands at a very high 277.9%, indicating that Walgreens might have difficulty meeting its obligations. In such situations, private equity groups sometimes come into play, privatizing the company through an acquisition to restructure and make it more efficient. On December 11, the Wall Street Journal reported that Sycamore Partners, a private equity firm, was in talks with Walgreens about a possible takeover, which caused the stock to rise by about 20%. But would such a takeover really be a purchase recommendation for the stock? If Sycamore actually decides to acquire and privatize Walgreens, shareholders would most likely need to vote on the next steps.