Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Walgreens drops after losing spot in blue-chip Dow index

Published 02/21/2024, 06:32 AM
Updated 02/21/2024, 09:25 AM
© Reuters. People walk by a Walgreens, owned by the Walgreens Boots Alliance, Inc., in Manhattan, New York City, U.S., November 26, 2021. REUTERS/Andrew Kelly/File Photo

By Manas Mishra and Amruta Khandekar

(Reuters) -Shares of Walgreens Boots Alliance (NASDAQ:WBA) fell 3% on Wednesday after the U.S. pharmacy chain operator lost its spot on the Dow Jones Industrial Average to Amazon (NASDAQ:AMZN), marking an end to a short stint for the blue-chip index's worst performer of 2023.

The replacement comes less than two months after Walgreens nearly halved its dividend payout to conserve cash as it sought to win back market share from rivals and expand beyond its pharmacies.

The move "is not the first time by a long shot that the index has moved away from a company that has lost its luster, to a company with perceived greater prospects by investors", said Rick Meckler, partner at Cherry Lane Investments, in New Jersey.

Adding Amazon gives the Dow a higher expected return and adds volatility as the stock is likely to have greater price movement than Walgreens, he said.

The switch was prompted by Walmart (NYSE:WMT)'s decision to split its shares, which would reduce the retailer's weightage on the index.

The Dow is weighted based on the share prices of its components, not on each company's overall market value.

Walgreens joined the Dow in 2018, replacing industrial conglomerate General Electric (NYSE:GE). Since then, the stock has lost about 65% of its value.

Walgreens has appointed new top executives, shuttered unprofitable stores and unveiled the dividend cut in January as it deals with low consumer spending, a drop in COVID-19 product sales and a slow ramp-up of its nascent healthcare unit.

Shares of Walgreens trade at a forward price-to-earnings ratio of 6.54, compared with 9 for larger rival CVS Health (NYSE:CVS). They fell 2.9% to $21.71 in premarket trading.

© Reuters. People walk by a Walgreens, owned by the Walgreens Boots Alliance, Inc., in Manhattan, New York City, U.S., November 26, 2021. REUTERS/Andrew Kelly/File Photo

S&P Dow Jones indices said on Tuesday that adding Amazon would increase consumer retail exposure, reflecting "the evolving nature of the American economy". The change is effective next week.

Amazon's shares rose marginally to $168.14 before the bell.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.