Walgreens Boots Alliance (WBA 0.57%) has been delivering ugly results to its shareholders for years. But in 2023, things have gone from bad to worse. It's down by a mammoth 43% year to date, and there seems to be no end in sight to the tailspin. There's no dip here -- investors who buy the stock are trying to catch a falling knife. Even in just the past month, shares of the pharmacy chain operator are down 16%.
How much worse can things get for shareholders, and would there be a point at which the stock was cheap enough that it would be a good buy?
Where analysts think the price will go
The consensus analyst price target for Walgreens is $35.69. That would suggest a 70% upside over the next 12 months for the healthcare stock compared to where it trades now. But before you pull the trigger based on Wall Street's projections, keep in mind that analysts often adjust their price targets as new information and earnings numbers come out. And by and large, analysts have been lowering their price targets for this stock. A year ago, the consensus price target was nearly $46.
Considering the company's low margins, its lower traffic as the boost from COVID-19 vaccinations has ebbed, and its high-yielding 8.8% dividend that investors doubt is safe, it wouldn't be surprising if there are more analyst downgrades to come. Next month -- when the company will report its fiscal fourth-quarter numbers -- should see a number of adjustments to the price target.
The stock now trades below book value
Walgreens' decline has been so significant that the stock is not even anywhere near its book value, trading at a price-to-book multiple of 0.87. While investors haven't paid big premiums for the stock in the past, here's how that compares with where it has been in previous years.
WBA Price to Book Value data by YCharts.
When a stock is trading below its book value, that can make it an attractive value proposition to investors. But that alone may not be enough to halt Walgreens' tailspin -- it has been below book value for some time, and thus far, that hasn't provided it with any kind of support.
The Rite Aid bankruptcy certainly isn't helping
News that rival Rite Aid is shutting down hundreds of stores as it negotiates with its creditors certainly isn't making Walgreens' investors feel too comfortable right now. Lawsuits relating to opioids have created some significant risks, and because it has a large debt load as well, the company is in a perilous position.
While this doesn't mean Walgreens is in the same situation, investors can't help but worry. But the truth is that while Walgreens doesn't face a rosy road ahead -- particularly considering the competition it faces from Amazon, Walmart, CVS Health, and other companies -- its cash situation isn't as dire as that of Rite Aid.
WBA Cash and Equivalents (Quarterly) data by YCharts.
Admittedly, Walgreens' numbers aren't terribly strong, given that it is spending billions on expanding its healthcare business and opening primary care clinics. But at the very least, it isn't nearly as risky a stock as Rite Aid.
How far could Walgreens' stock fall?
Walgreens' stock is trading well below book value, and it's also well below the lowest analyst price target -- $27. Given the bearishness right now, it could fall below $20, but to pick a specific number and say it will go that low would almost be arbitrary, so I'll avoid doing that. But I believe that the news around Rite Aid could continue to put pressure on Walgreens stock for at least a few more weeks until Walgreens reports earnings.
After that, I expect the stock should start to rebound because there's already so much negativity priced into the stock that it would be hard to imagine the company somehow performing worse than the already-low expectations that investors have for the business. That's by no means a guarantee, but that's when I can see the stock potentially bottoming out.
This is a bit of a risky stock to own right now, but if you can stomach the risk, Walgreens could make for an intriguing contrarian investment as the stock's sell-off this year appears to have been extreme, and a bounce back in the share price appears overdue.
