Monday, JPMorgan (NYSE:JPM) reiterated its Underweight rating and $15.00 price target on Walgreens Boots Alliance (NASDAQ:WBA), which currently trades at $9.50, near its 52-week low of $8.08. According to InvestingPro analysis, the stock appears slightly undervalued based on its Fair Value metrics.
JPMorgan provided insights ahead of the company's earnings report for the first quarter of fiscal year 2025, scheduled for release on January 10, before market open, with a subsequent call at 8:30 am Eastern.
The focus for investors will be on the retail pharmacy segment's performance and management's comments on strategic initiatives, particularly given the company's challenging 17.96% gross profit margin.
The recent fluctuations in Walgreens' stock price have been attributed to reports of a potential leveraged buyout (LBO) by Sycamore Partners. With a market capitalization of $8.2 billion and total debt of $33.8 billion, any LBO would face significant challenges. JPMorgan's credit analyst, Carla Casella, has analyzed the likelihood of such a transaction.
The firm views the probability of an LBO as low due to the complexity and number of stakeholders involved, such as the potential separation of Boots and/or sale of VillageMD. To date, neither Walgreens nor Sycamore have made any statements regarding a possible deal.
The expectation is that Walgreens management will maintain that all options are being considered, though no announcement is anticipated in conjunction with the earnings release. Dive deeper into Walgreens' financial health with InvestingPro, which offers comprehensive analysis and over 30 additional financial metrics.
For the near term, JPMorgan anticipates Walgreens will continue its strategic initiatives to stabilize retail pharmacies and shut down underperforming stores. The first quarter of 2025 is expected to show ongoing trends from the previous fiscal year, including challenges such as the completion of sale-leaseback transactions, diminished COR equity income, and gross margin pressures due to a weak macroeconomic environment.
Looking beyond the immediate news, key themes for Walgreens are expected to include retail trends, consumer behavior, any signs of improvement within the Healthcare segment, and updates on the planned closure of approximately 500 stores during fiscal year 2025.
For the longer term, clarity around strategic priorities for key assets like VillageMD and Boots, as well as the approach to managing leverage, are anticipated to be important focal points for investors. Access the complete Walgreens Pro Research Report, along with 1,400+ other detailed company analyses, exclusively on InvestingPro.
In other recent news, Walgreens has been under scrutiny due to potential acquisition talks with Sycamore Partners. The company's revenue has increased by 6.2% over the last twelve months to $147.7 billion. Analyst firms such as TD Cowen, Mizuho (NYSE:MFG), and Leerink Partners have made various adjustments in their financial outlooks for Walgreens.
TD Cowen affirms a buy on Walgreens shares, anticipating a slight decline in the respiratory season and estimates an adjusted EPS of $1.54 for fiscal year 2025 and $1.40 for fiscal year 2026.
RBC Capital Markets reduced its price target for Walgreens to $9, reflecting the company's anticipated challenges in the U.S. Retail Pharmacy sector. Meanwhile, BofA Securities maintained its underperform rating on Walgreens with a steady price target of $7.50, citing persistent challenges despite the company's cost-cutting measures.
Furthermore, Walgreens has reached a preliminary settlement in a shareholder derivative lawsuit. These are recent developments in the ongoing story of the company's efforts to navigate a challenging retail environment.
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