Walgreens Rallies on Store Closure Plan. Is the Stock a Buy Now?

Core Viewpoint - Walgreens Boots Alliance has faced significant challenges in the past year, with a stock decline of approximately 60% year-to-date, but recent earnings and a store closure plan may indicate a potential bottom for the stock [1]. Earnings and Store Closures Plan - In fiscal Q4, Walgreens reported a revenue increase of 6% year-over-year to $37.55 billion, surpassing analyst expectations [2]. - Adjusted EPS fell 40% to $0.39 due to margin pressures, although it exceeded the consensus estimate of $0.36 [2]. - U.S. retail pharmacy sales rose 6.5% year-over-year, with same-store sales increasing by 8.3% [2]. - Adjusted operating income decreased by 60.4% to $220 million, impacted by reimbursement pressures and a challenging retail environment [2]. International Sales Performance - International sales grew by 3.7% year-over-year, with Boots UK sales up 2.3% [3]. - Boots retail same-store sales increased by 6.2%, while pharmacy same-store sales rose by 10% [3]. - International adjusted operating income fell by 10.6% to $231 million, primarily due to a lack of real estate gains [3]. Financial Health - Walgreens generated $1.1 billion in free cash flow for the quarter and $23 million for fiscal 2024, ending the fiscal year with $9.5 billion in debt and $3.1 million in cash and marketable securities [4]. - The company has successfully reduced expenses by over $1 billion in response to margin pressures [4]. - Walgreens plans to close 1,200 unprofitable stores, including 500 in fiscal 2025, to improve profitability [4]. Future Outlook - The company forecasts adjusted EPS for the full fiscal year between $1.40 and $1.80, with sales projected between $147 billion and $151 billion [4]. - Closing stores is expected to enhance earnings and boost traffic to nearby locations, potentially increasing same-store sales [5]. - Walgreens is exploring alternative reimbursement models with pharmacy benefit managers (PBMs) and has locked in 80% of its contracts for the upcoming year [6]. Valuation and Investment Potential - Despite recent gains, Walgreens trades at a forward P/E ratio of 5.5, indicating it is undervalued compared to historical valuations [7]. - A favorable outcome in the FTC lawsuit against PBMs could further enhance Walgreens' turnaround potential [9].