After falling from around $36 per share to reach near $22 in the last 12 months, there may not be much of a reprieve in sight for shareholders of Walgreens Boots Alliance (WBA 0.57%). According to an updated price target issued by financial analyst Daniela Bretthauer at HSBC, the stock could fall even further soon, to $20.
Given that Bretthauer's prior estimate called for the pharmacy chain's shares to trade around $27, her update signifies increasing bearishness about its prospects for growth and profitability. And there's more than one culprit for darkening sentiment.
Challenges are mounting
The past three years have been characterized by Walgreens' struggle to maintain a positive operating margin while it attempts to enter the primary care business. At the same time, its debt load of $34.7 billion is getting concerning, and the last few quarters have been characterized by selling off hundreds of millions of its investments to pay down its liabilities. Underscoring its increasingly fraught finances, Walgreens' quarterly dividend was cut by nearly half at the start of this year.
Will things start to look up?
Management claims that its new healthcare segment's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will reach a break-even point sometime in its 2024 fiscal year. At the same time, they see the strengthening of headwinds like slower prescription growth and reduced consumer spending, both of which are sure to hurt its core retail pharmacy segment.
In short, if it makes operational progress in cutting costs and onboarding new customers in its primary care segment, it might be offset by a pullback elsewhere. Thus, Walgreens' near-term looks quite bearish, and it's very possible that its shares might fall even further than the HSBC analyst calculates.
