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Former Walgreens CEO Rosalind Brewer stepped down earlier this month.
Valerie Plesch/Bloomberg
Normally, the announcement of a CEO change at a struggling firm brings optimism and perhaps even a inventory pop. Not for
Walgreens Boots Alliance
.
Its shares have tumbled since Rosalind Brewer introduced on Sept. 1 that she was stepping down. That might current a shopping for alternative if the corporate makes the “proper” selection for a brand new chief.
Let’s face it. Walgreens inventory (ticker: WBA) is flat-out hated. Whereas shares have slumped 13% in September, that’s nothing new—they’ve misplaced two-thirds of their worth over the previous 5 years. The issues are wide-ranging: Progress has been sluggish, it missed out on shopping for a pharmacy-benefits supervisor the way in which competitor
CVS Well being
(CVS) has, and its pivot to purchasing doctor practices has dragged down profitability. With the inventory down a lot, traders apparently suppose Brewer’s alternative will most likely fail too.
Turning the corporate round will probably be robust. Walgreens’ whole working margin is anticipated to have fallen to only below 3% this 12 months from simply over 5% in 2018. Earnings per share are anticipated at $3.95 from $6.01 in 2018. The inventory now trades just below six instances EPS estimates for the following 12 months, a mere fraction of the
S&P 500 index’s
19 instances.
That might arrange a pop within the inventory within the close to time period, if the corporate names a brand new CEO quickly. The market desires to see a healthcare knowledgeable take the helm as a result of the retail enterprise faces stiff competitors from e-commerce gamers like
Amazon.com
(AMZN). A robust healthcare providing may revive the retail enterprise since Walgreens is inserting a few of its new physician’s practices in shops, probably turning these sufferers into buyers.
“They could need a administration group that has a healthcare background,” says Evercore analyst Elizabeth Anderson. “In the event that they get anyone who has good data of payers and value-based care, that will be seen positively.”
The rub is that Walgreens’ healthcare enterprise, which incorporates VillageMD, Shields Well being Options, and CCX Subsequent, must be viable—and worthwhile. It’ll take time. It has misplaced cash this 12 months due to payouts it has to make when a affected person visits the hospital, explains Jefferies analyst Brian Tanquilut. Walgreens must work out drive its healthcare prices down, or the inventory will stay below stress and it might have to chop its dividend.
The excellent news is that administration mentioned on its third-quarter earnings name that it expects the healthcare enterprise to maneuver nearer to profitability subsequent 12 months, Evercore’s Anderson says. As these practices develop sufferers and income aggressively, the unit may get to profitability by fiscal 2025.
However these are longer-term issues. Proper now, the corporate simply wants to call a CEO the market can get behind. And if it does, Walgreens inventory might be a short-term winner.
Write to Jacob Sonenshine at [email protected]
