If you’re currently holding shares in Walgreens Boots Alliance (NASDAQ: WBA), it may be time to evaluate your investment strategy. Many investors initially bought into Walgreens with the expectation of steady dividend income and modest capital appreciation. However, the reality has not aligned with these expectations, leaving many shareholders in a difficult position.
Over the past decade, Walgreens has experienced a staggering decline of over 80% in total return. During this same period, the company’s quarterly free cash flow (FCF) has plummeted by 53%, dropping to just $327 million. As a significant indicator of distress, Walgreens recently slashed its quarterly dividend by 48%, reducing it to $0.25 per share.
Compounding these issues, Walgreens has devoted nearly $27 billion in debt repayments over the trailing twelve months, severely limiting funds available for growth or returning value to shareholders. Contrary to the struggles faced by Walgreens, its primary competitor, CVS Health, has managed to enhance its total returns, with substantial growth in both FCF and dividend payouts.
The core services offered by Walgreens, particularly in retail pharmacy, have shown resilience, with a reported 1.7% year-over-year increase in non-immunization prescriptions filled. Still, the overall landscape for pharmacy chains has shifted. The company is grappling with declining sales in non-prescription health goods and diminishing reimbursement rates from insurance providers. In essence, the benefit seen during the economic reopening in 2021 appears to have faded.
The company has sought to diversify into the primary care sector, which, while not a drain on resources anymore, has yet to significantly impact its bottom line. In the near term, the only viable route for Walgreens involves divesting certain assets to manage its debt obligations, all while strategically cutting operating costs. Unfortunately, these measures could lead to further revenue loss and a continuous decline in total assets, adversely affecting the stock price.
For those considering a long-term investment, it is crucial to recognize that while recovery is possible, the timeline for Walgreens to reclaim its former standing is uncertain. There is little substantial evidence indicating solid recovery pathways at present. Even the most optimistic investor should weigh the potential for additional losses against a timeline that could stretch for years.
In light of these ongoing developments, the prudent decision may be to sell your Walgreens shares. The risk of further declines appears significant, and it may be in your best interest to exit the position now. If the company ever begins to show signs of recovery in its core areas, you can always re-evaluate and consider re-entering the stock later.
As you contemplate your investment in Walgreens Boots Alliance, it’s worth recognizing that the market offers numerous alternatives that may present a far better opportunity for growth. For instance, a range of high-performing stocks have been identified by investment analysts for their strong potential moving forward. Engaging with these promising alternatives could provide a more fruitful path for your portfolio.
In closing, if you’re examining your holdings in this pharmacy giant, now is the time to make a considered decision. Assess your options, stay informed about market trends, and pivot towards opportunities that align with a more favorable investment thesis. Your financial future may depend on taking proactive steps in a constantly evolving market landscape.