Today, Walgreens Boots Alliance (NASDAQ: NASDAQ:WBA) announced its strategic move towards healthcare, intending to establish health clinics at select pharmacies. This initiative is part of the company's strategy to address its growth and profitability challenges, despite the potential risks involved.
In 2021, Walgreens set an ambitious target to create 1,000 primary care practices within its network of 12,500 stores by 2027. To achieve this goal, the company invested $5.2 billion in VillageMD, a primary care operator. VillageMD later purchased Summit Health for $9 billion, a move supported by Walgreens with an additional investment of $3.5 billion in debt and equity.
However, Walgreens' financial status has been unstable. The company's fiscal 2023 fourth-quarter earnings report revealed a significant drop in cash and marketable securities from nearly $2.5 billion a year earlier to approximately $740 million at the end of August. Despite an increase in in-store traffic due to vaccinations, the company reported a net loss of $208 million for the quarter while continuing to pay dividends costing $415 million every quarter.
In terms of future projections, Walgreens expects its U.S. healthcare business to break even in fiscal 2024 with adjusted EBITDA ranging from negative $50 million to positive $50 million. This forecast falls short of true accounting profitability. The company has not offered any long-term guidance but stated it would continue monitoring and evaluating macroeconomic conditions.
To alleviate its financial difficulties, management plans to close 60 underperforming VillageMD clinics and exit five markets in its healthcare business, expected to save $1 billion in expenses. This adjustment suggests that Walgreens' initial healthcare strategy may have been overly aggressive.
Adding to the uncertainty is the recent appointment of a new CEO which could herald further changes for the company. Given these conditions, investors are advised to adopt a cautious stance towards Walgreens' stock until there's more clarity on the company's direction under the new CEO.
InvestingPro Insights
Taking into account the latest data from InvestingPro, here are some key insights about Walgreens Boots Alliance (NASDAQ: WBA). Firstly, it's important to note that despite recent challenges, WBA has a history of consistent dividend payments, having raised its dividend for 48 consecutive years and maintained payments for 53 years. This is a testament to the company's commitment to returning value to shareholders.
InvestingPro data also indicates that Walgreens is a prominent player in the Consumer Staples Distribution & Retail industry. This, coupled with the company's plans to establish health clinics at select pharmacies, indicates a potential for growth and expansion in the healthcare sector.
However, it's also worth noting that the company's short-term obligations exceed its liquid assets, and its stock has taken a hit over the past six months. These factors, along with the recent changes in leadership, may contribute to the current uncertainty surrounding the company's future.
In conclusion, while Walgreens has shown resilience in the past, it's crucial for potential investors to keep an eye on the company's financial health and strategic moves. For more in-depth analysis and tips, consider exploring the InvestingPro platform, which offers a plethora of additional insights for informed investment decisions.
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