Walgreens Boots Alliance (WBA +0.00%) stock has crashed by 32% year to date. After an abysmal year, it's not just hitting new 52-week lows -- it's hitting lows it hasn't seen since 2009.
The road ahead for the business is an unclear one. While Walgreens has offered investors a growing dividend over the years, lately it has been pivoting more toward growth objectives, including launching primary clinics at its locations. In the midst of all this, the company has struggled to stay out of the red.
Where will Walgreens' business be in a year, and is it worth investing in this struggling stock now?
The new CEO faces an uphill battle
In October, Walgreens announced it was bringing in a new CEO, Tim Wentworth. With broad management experience, including roles at Cigna and PepsiCo, he has plenty of experience with growing businesses.
Wentworth is in a tough position, however, given Walgreens' stock performance and the company's current struggles. Its retail locations are no longer getting a traffic boost from people seeking COVID-19 vaccinations. And in three of the past four quarters, Walgreens has posted an operating loss.
NASDAQ: WBA
Key Data Points
Investors should brace for a big move
Walgreens is at a crossroads, and there are indications that the board is looking for significant changes. I fully expect that Wentworth will make some once he has had time to get a good grasp on the business and its operations.
In the press release announcing Wentworth's appointment, the focus was on his healthcare experience. Executive Chairman Stefano Pessina stated, "We are confident he is the right person to lead WBA's next phase of growth into a customer-centric healthcare company."
This sounds to me like something the leaders of a company in transition might say. But it appears evident that abandoning the healthcare strategy and the launch of primary clinics isn't on the agenda. That wouldn't appear probable with the hiring of Wentworth.
But that doesn't mean other moves aren't on the table, such as closing some locations, as well as cutting or stopping the dividend. According to Bloomberg News, the company is also considering getting rid of its U.K.-based Boots business, potentially by spinning it off with a public offering. In the past, Walgreen has contemplated selling the business, so it wouldn't come as a huge shock to investors.
A new CEO has the benefit of coming in fresh and not having to worry so much about the company's previous track record and performance, which can make it easier to announce a big change. I believe that management will cut the dividend to free up cash flow, and that the company will get leaner by either selling or spinning off Boots, or reducing the number of retail pharmacy locations it has in the U.S.
The financials should improve
Whatever actions Wentworth takes, they will likely be aimed at improving free cash flow (which has been negative in two of the past four quarters) and the bottom line. The business simply can't continue expanding into healthcare, spending billions, while also being unprofitable and paying a dividend. At some point, something has to give, which is why I believe at least one big move is inevitable over the course of the next 12 months.
The good news for investors is that should Walgreens get back to posting consistent profits and positive free cash flow, that would help get the stock out of the gutter.
Is Walgreens stock a buy?
While there is reason for hope that Walgreens can improve its business over the next 12 months, until it happens, investors are still better off waiting on the sidelines. Turnarounds don't always go according to plan, and given the risks surrounding the business today, including its lack of profitability, shares of the healthcare stock could still fall further and things could get worse before they get better for Walgreens.
