Please ensure Javascript is enabled for purposes of website accessibility

Why Walgreens Boots Alliance, CVS Health, and Rite Aid Are Falling Today

By Brian Feroldi - Apr 2, 2020 at 1:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

All three retail pharmacy giants take a step back after Walgreens withdraws its full-year outlook.

What happened

Shares of Walgreens Boots Alliance (WBA 1.30%)CVS Health (CVS 2.05%), and Rite Aid (RAD 4.44%) all tumbled on Thursday. Each of these companies' stocks was down at least 7% in early-morning trading. As of 12:40 p.m. EDT, their stocks were down 7%, 4%, and 13%, respectively. 

So what

All three of these stocks appear to be selling off in response to Walgreens' earnings report for the second quarter of fiscal 2020, which was released this morning.

Here are the key headline numbers for investors to know:

  • Sales grew by 3.7% to $35.8 billion. That was ahead of the $35.3 billion analysts had predicted.
  • Operating income fell 18.7% to $1.2 billion. On a non-GAAP (adjusted) basis, operating income fell 12% to $1.7 billion.
  • EPS fell 14% to $1.07. Adjusted EPS fell 7% to $1.52. That was ahead of the $1.46 Wall Street was expecting.
Hundred dollar bills with colored drugs on top

Image source: Getty Images.

Walgreens CEO Stefano Pessina made the company's near-term focus clear to investors:

Our number one priority is to continue to provide essential services, products and information at this critical moment of need, demonstrating our unwavering commitment to our customers and patients, and to our people.

He also gave a few examples of how the company is responding to the coronavirus pandemic:

  • Customers can get certain cleaning and grocery items through the company's drive-through windows.
  • Free home delivery is being offered on prescriptions and products purchased online in the U.S. 
  • Walgreens is partnering with U.S. and U.K. governments to initiate testing.
  • Temporary benefits for certain employees have been expanded.

Overall, the quarterly numbers were good, and management is making moves that should be applauded. However, traders appear to be squarely focused on the company's guidance.

Management stated that it was on track to meet its previously issued guidance for fiscal 2020, which called for adjusted EPS to be flat, plus or minus 3%. However, COVID-19 has forced management to withdraw that guidance:

Although the COVID-19 situation is ultimately temporary, given the many rapidly changing variables related to the pandemic, at this time WBA is not in a position to accurately forecast the future impacts. The company will continue to closely assess and manage this situation, and will provide further updates in the next earnings report when both the potential positive and negative effects of the pandemic will be known in more detail.

Walgreens shares are declining in response to the increased uncertainty, and traders are knocking down the share prices of CVS Health and Rite Aid, too. 

Now what

Walgreens, CVS Health, and Rite Aid are all on the front lines of the COVID-19 pandemic. Each of them provides essential services in the communities it serves, and it is likely that demand for some of their products will remain elevated for the time being. However, given social distancing restrictions, it's understandable that Walgreens management decided to withdraw its full-year guidance.

It also makes sense that Rite Aid's stock is reacting so harshly to this update. The company was already struggling with sales growth prior to the pandemic, and its balance sheet isn't in great shape. As of Nov. 30, 2019, Rite Aid had just $289 million in cash and more than $3.5 billion in long-term debt, plus a number of other liabilities. The odds are good that it is going to struggle throughout this period much more than Walgreens or CVS Health.

It's anyone guess where these value stocks are heading next. The $2 trillion stimulus will likely help many of its customers, which could help to keep sales afloat during this trying time. Then again, it still might not be enough to offset the loss of foot traffic.

Either way, I'd encourage investors to remain focused on these companies' long-term potential, and not focus too much on what is going to happen in the next few quarters.

Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Rite Aid Corporation Stock Quote
Rite Aid Corporation
$11.05 (4.44%) $0.47
CVS Health Corporation Stock Quote
CVS Health Corporation
$106.39 (2.05%) $2.14
Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
$40.59 (1.30%) $0.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.