Per the consensus price target of Wall Street analysts, shares of Walgreens Boots Alliance (WBA 0.57%) are set to gain 23% within a year. But given the stock's decline of 27% over the last three years, it's reasonable for investors to wonder whether Wall Street's estimates are a bit too optimistic to be actionable.

Let's analyze Walgreens' positioning and examine its near-term options to see if the analysts are likely to be correct.

Downward pressure more likely than a rebound

One key reason Walgreens stock is probably not going to rise by as much as Wall Street hopes is that it's selling off its investments to generate enough cash to pay its dividend, which isn't generally something a company does when it's on track to gain in value. 

Right now, it has $1.8 billion in cash, equivalents, and short-term investments. In the most recent quarter, it paid out $414 million in dividends, and it reported operating income of $121 million and free cash flow (FCF) of $248 million.

In other words, its operations aren't making enough money to keep paying out its dividend at the current rate without withdrawing some cash from its hoard, and it isn't able to replenish that hoard as quickly as it's getting spent down. That means it's hard to believe that Walgreens will be able to pursue its strategic growth initiatives to build out its primary healthcare and digital healthcare segments.

To avoid wiping out its savings from its dividend payments, Walgreens is thus selling off some of its investments to paper over the hole in its budget. On June 8, it announced that it will be selling its stake in Option Care Health, worth $330 million. Management says that the funds will go to paying off some of the company's debt load of $38.5 billion. In the second quarter, it spent $1.5 billion on debt repayment.

The sale comes on the tail of its announcement in May that it was selling some of its shares of AmerisourceBergen to make around $644 million, which was also slated for use in debt repayment.

It can probably continue to sell off its marketable investments to generate cash for a while longer. But given that over the last five years its quarterly sales have only grown by 4.2%, reaching $34.8 billion, it's a bit hard to believe that there is any big growth spurt on the way that would solve its dividend sustainability problems.

Could the analysts still be right in the end? 

Walgreens' financial crunch is not the be-all or end-all for the business, nor does it spell doom for its stock. But keep in mind, it's fundamentally a pharmacy chain that's starting to dabble in a few adjacent areas, like providing healthcare and managing patients' healthcare information for them. Its healthcare segment even grew by 30% year over year in Q2, so there is some reason to hope that the growth will eventually carry the bottom line forward to success if it can continue at that rate long enough.

Plus, management is expecting the company's earnings per share (EPS) growth to rise to the mid-20s in percentage points during the second half of 2023. That could easily send its shares on a tear upwards if the third-quarter results expected in late June deliver what's anticipated. Furthermore, its leadership could announce new plans or initiatives that might excite the market into bidding up its shares. 

At the moment, Walgreens' price-to-earnings (P/E) ratio is 6, meaning that investors on average have a rather pessimistic take on its ability to expand its earnings in the near term. With a valuation that's so low, and management so unashamedly bullish about the second half of the year, it might not take too much in the way of actual progress to spur demand for its shares, sending its price upwards.

So even though Walgreens has been having some issues with squaring its liabilities and its cash output, it is indeed fairly realistic for its shares to rise by as much as Wall Street is expecting. 

But I wouldn't bet on it, and I wouldn't buy this stock. While its dividend yield of 6% is doubtlessly appealing, the company needs to seriously reduce its debt load (or increase its earnings) before it can credibly say that the dividend is sustainable for the long term. And as long as it's paying out more than it brings in, investors are exposed to the nasty risk of their dividend not being hiked or even paid at the same level.