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Key Takeaways
- Walgreens Boots Alliance stock moved lower following a price target cut by TD Cowen.
- Analysts also reduced their full-year profit forecasts, citing the impact of Walgreens’ store-closure plans.
- Although markets initially reacted positively to Walgreens’ turnaround strategy, Cowen’s more muted outlook raises questions about the effect of store closures.
Shares of pharmacy giant Walgreens Boots Alliance (WBA) tumbled on Tuesday after investment bank TD Cowen cut its price target on the stock to $14 from $16.
Cowen analysts said their diminished outlook on Walgreens stock hinged on reduced profit expectations for fiscal 2025. The firm trimmed its full-year forecast for the drugstore operator’s adjusted earnings per share (EPS) to $1.54 from $1.71, reflecting the financial repercussions of expected store closures.
Although the analyst team anticipates that EPS will fall even further year-over-year in fiscal 2026, Cowen believes Walgreens should return to earnings growth by fiscal 2027.
Walgreens shares fell 6.9% to close Tuesday at $9.73.
Assessing the Impact of Walgreens’ Turnaround Plan
The updated estimates from TD Cowen incorporate the anticipated financial impact of Walgreens’ strategy to turn around its U.S. business, which includes the closure of roughly 1,200 underperforming stores over the next three years.
The store-closure plan, which Walgreens announced in conjunction with its fiscal fourth-quarter 2024 earnings report on Oct. 15, includes plans to shutter around 500 locations in fiscal 2025. In the earnings release, the company asserted that the initial round of closures would be “immediately accretive to adjusted EPS and free cash flow.”
The market’s initial reaction to the company’s plans to optimize its store footprint appeared to be positive. In fact, Walgreens shares soared more than 15% on Oct. 15 following the strategic announcement. It didn’t hurt matters that the earnings report released that day also featured better-than-expected revenue and adjusted profit results.
However, Tuesday’s price target cut and lower earnings forecasts from TD Cowen raise questions about the extent and timing of a potential boost in profitability for Walgreens as a result of the store closures.
A Rough Year for Walgreens Stock
Despite the uptick following the recent earnings release, Walgreens stock has been trending downward in 2024 as the company navigates a challenging operating environment.
Following Tuesday’s losses, Walgreens shares are down 63% year-to-date.
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