Walgreens Still Too Early For Turnaround

It’s still too early to play a turnaround in Walgreens stock with a possible credit downgrade being pondered by Moody’s. On October 13, 2023, Moody’s cited a continued decrease in profitability at Walgreens, and said it may cut Walgreens to Junk, according to Bloomberg.

On October 12, 2023, Walgreens Boots Alliance reported Q4 EPS of 67c versus the consensus estimate of 69c. The company reported Q4 revenue of $35.42 billion versus the consensus estimate of $34.82 billion. U.S. retail pharmacy comparable sales increased 5.7% from the year-ago quarter.

Interim CEO Ginger Graham said: “Our performance this year has not reflected WBA’s strong assets, brand legacy, or our commitment to our customers and patients. In just six weeks, we have taken a number of steps to align our cost structure with our business performance, including planned cost reductions of at least $1 billion, and lowered capital expenditures by approximately $600 million. We anticipate seeing the impact of these actions in fiscal 2024, beginning in the second quarter. We are also intently focused on accelerating our profitability in the U.S. Healthcare segment. As we welcome our new Chief Executive Officer, Tim Wentworth, who brings deep healthcare experience and the skills needed to propel WBA forward, along with the support of the Board, I am confident in our company’s future and the ability to deliver greater value to our customers, shareholders, partners, and employees.”

A Moody’s credit downgrade can have a significant impact on a stock. When Moody’s downgrades the credit rating of a company, it indicates a higher risk of default on the company’s debt. This can lead to several consequences:

1. Increased borrowing costs: A credit downgrade often results in higher borrowing costs for the company. This means the company will have to pay higher interest rates on its debt, which can reduce profits and impact cash flowThe cash flow statement provides a detailed overview of the cash inflows and outflows of a company over a specified period of time. It includes cash received from operations, inves... More.

2. Reduced investor confidence: A credit downgrade signals that the company’s financial health has deteriorated, which can shake investor confidence. Investors may become more cautious and decide to sell their shares, causing a decline in the stock price.

3. Negative outlook: A downgrade can also result in a negative outlook on the company’s future prospects. This negative sentiment can further discourage investors and potentially lead to a decline in the stock price.

4. Limitations on financing options: Lower credit ratings can restrict a company’s ability to access certain financing options. It may become more challenging for the company to raise capital through debt issuance or secure favorable loan terms from banks.

5. Impact on business relationships: A credit downgrade can also affect the company’s relationships with suppliers, customers, and business partners. Suppliers may demand stricter payment terms or require upfront payments, while customers may become hesitant to engage in long-term contracts with the company.

Overall, a Moody’s credit downgrade can have a cascading effect on a stock, leading to decreased investor confidence, higher borrowing costs, limited financing options, and potential disruptions in business relationships.

Walgreens is a retail pharmacy chain that provides a range of health and wellness products and services. Some of the main things Walgreens does include:

1. Pharmacy Services: Walgreens operates pharmacies in its stores, offering prescription medications, over-the-counter drugs, and health consultation services.

2. Retail Products: Walgreens sells various health and wellness products, including personal care items, vitamins, supplements, beauty products, household essentials, and convenience items.

3. Photo Services: Walgreens offers photo printing, photo gifts, and custom photo cards.

4. Healthcare Services: Walgreens provides a range of healthcare services, such as immunizations, health screenings, blood pressure checks, and medication management programs.

5. Health Clinics: Some Walgreens stores have healthcare clinics, known as Walgreens Healthcare Clinics or Walgreens Healthcare Clinic at select Walgreens, where patients can receive basic medical care and treatment for minor illnesses.

6. Online Services: Walgreens operates an online platform where customers can order prescriptions for home delivery, shop for products, and access various health resources.