Walgreens: New Strategies Against Old Problems?

Walgreens Boots Alliance, a fixture in the healthcare sector, is currently grappling with significant challenges. The long-established pharmacy chain, known for reliably serving its customers for generations, is in a critical phase of transformation. Ill-considered expansion efforts have recently strained the balance sheet and led to a dramatic 90% drop in stock from its peak value. The company is now taking vigorous measures to reverse this trend. The management is reducing existing debt and hopes for a future return to earnings growth. The current dividend yield of 11% is attracting investors who are banking on a recovery of the company. But what are the actual chances? Has Walgreens reached a point where the competition has finally pulled ahead? Walgreens is one of the leading pharmacy companies worldwide. Paradoxically, prescription drugs often serve merely as a lure to draw customers into the stores. The actual profits are mainly generated by the sale of retail goods, food, and beverages during the customer visit. In the U.S. alone, Walgreens generated revenues of nearly 116 billion dollars in 2024, with an operating profit of only 2.1 billion dollars—a margin of just 1.5%. The increasing competition from mail order and e-commerce is forcing traditional pharmacies to adapt their business model. Walgreens has heavily invested in healthcare services, which led to increased costs. Now, however, the company is focusing more on streamlining its structures and eliminating unprofitable outlets. All indications suggest that Walgreens might have overcome the worst. With earnings of 2.88 dollars per share in 2024 and a projected decline to 1.40 dollars at the lower end for 2025, improvement seems in sight. Analysts expect the company could recover in the next three to five years with an average annual growth of 5%. Is it possible that despite all adversities, an above-average return is achievable? This remains to be viewed with caution. The investment thesis appears enticing due to the growth potential of earnings and a combination of dividend yield and a respectable P/E ratio of about 6.