With a horrid 14% negative return in 2019, Walgreens Boots Alliance (NASDAQ:WBA) earned itself a spot on the Dogs of the Dow list. The global retail pharmacist has been struggling with shifting consumer trends toward e-commerce, a competitive pharmacy industry, and consolidating insurance companies that are paying out less for prescriptions, leading to flat revenue and falling profits the last couple of years -- even as healthcare and wellness spending overall continues to rise.

In response, Walgreens has been investing in digital operations and cutting costs. There isn't a ton to be excited about here, except that shares are beginning to look cheap. The stock fell again -- more than 5% the day it reported on results from its fiscal 2020 first quarter.

A quick recap of Q1

After putting up a 4% increase in sales but a 0.5% decrease in adjusted earnings per share, Walgreens started the new year sluggishly, missing average Wall Street sales expectations and seeing its adjusted earnings fall 6%. Management had issued adjusted earnings guidance for 2020 to be flat with last year, so the quick fall left many investors feeling glum -- although that guidance for a flat bottom-line remained unchanged after the report.

Metric

Three Months Ended November 30, 2019

Three Months Ended November 30, 2018

Change

Revenue

$34.3 billion

$33.8 billion

1.5%

Gross profit margin

21.2%

22.6%

(1.4 pp)

Operating expenses

$6.26 billion

$6.28 billion

0%

Net income

$845 million

$1.12 billion

(25%)

Adjusted earnings per share

$1.37

$1.46

(6%)

Pp = percentage point. Data source: Walgreens Boots Alliance.  

Walgreens credited the top-line growth to rising drug prices and sales volume, but that obviously didn't help the all-important bottom-line. And that's been the problem for a while now at the retail pharmacist. Management did say it's making progress on its cost savings plan by updating its computing systems to cloud-based ones and introducing a new drug procurement joint venture with grocery retailer Kroger (NYSE:KR). It also started another joint venture with healthcare and pharmacy company McKesson (NYSE:MCK) to handle operations in Germany. All told, savings are now expected to be in excess of $1.8 billion a year by 2022.

A medicine cabinet shelf with various bottles of prescription medications sitting on it.

Image source: Getty Images.

One cheap dividend stock?

However, paltry growth that leads to contracting profits doesn't exactly make for a high-conviction stock purchase. Nevertheless, buying well-established names on weakness, like what was exhibited in 2019 and so far in 2020, can be a winning strategy. And while there are obvious flaws with Walgreens' business, at some point the stock will be too cheap to ignore. Shares trade for just 13.1 times last years' free cash flow (what's left after operating and capital expenses) and only nine times one-year forward expected earnings. The dividend is currently a respectable 3.1% yield as well.

However, with Walgreens continuing to forecast another flat year for the bottom line and little headway being made to differentiate itself from the other retail healthcare options out there, this stock is cheap for a reason. After a weaker-than-expected Q1 2020, shares could continue to tumble for the next few weeks. I'm not quite ready to say the time is right to make a purchase, but I do think it's getting close. If shares continue to fall and deepen the discount post-report, I'll be ready to pick up a few shares.