Walgreens Boots Alliance-Walgreens Stock Skyrockets as Turnaround Begins. Is It Too Late to Buy the Stock?

Core Viewpoint - Walgreens Boots Alliance has shown signs of recovery in early 2025 after a significant decline in 2024, with better-than-expected fiscal Q1 2025 results indicating ongoing turnaround efforts [1] Financial Performance - Revenue increased by 7.5% year over year to $39.5 billion, surpassing analyst expectations, while adjusted EPS fell 29% to$ 0.51, exceeding the consensus of $0.37 [2] - U.S. retail pharmacy sales rose 6.6% year over year, with same-store sales up 8.5%, although comparable retail sales decreased by 4.6% due to a slower cold and flu season [3] - Adjusted operating income for the U.S. pharmacy business dropped 36.4% year over year to$ 441 million, with gross margins declining from 18.8% to 17% [4] Store Closures and Strategy - The company closed 67 locations in the quarter and plans to close approximately 450 more by the end of 2025, which is expected to improve profitability in the long run [5][9] - Initial inventory management and merchandising efforts have begun, although these have negatively impacted retail sales in the quarter [5] International Performance - International sales grew by 6.5% year over year, with Boots UK sales up 4.6%, and adjusted operating income increased by 16.1% to $168 million [6] Healthcare Segment - Revenue from the U.S. healthcare segment rose 12% year over year to$ 2.17 billion, with significant growth in partnerships such as VillageMD and specialty pharmacy Shields [7] Debt and Cash Flow - The company ended the quarter with $8.1 billion in debt and$ 1.2 billion in cash, generating negative free cash flow of $424 million due to seasonal inventory buildups [8] Future Outlook - Walgreens maintains its fiscal full-year guidance for adjusted EPS of$ 1.40 to $1.80, indicating confidence in its recovery strategy [8] - The company’s contracts for 2025 are expected to alleviate some reimbursement pressures, which is a critical area to monitor [10] Valuation - Walgreens trades at a forward P/E ratio of 7.7 and an enterprise value to EBITDA multiple of 5, suggesting the stock is undervalued [12] Competitive Landscape - The company faces competition from Walmart and Amazon, which are capitalizing on Walgreens' store closures by offering free same-day prescription deliveries [13]