Will Walgreens Remain Defensive?

March 16th, 2020 by Trefis Team
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WBA: Walgreens Boots Alliance logo
WBA
Walgreens Boots Alliance
Walgreens Boots Alliance (NASDAQ: WBA) stock is expected to remain defensive in the current market. It has fared better than the broader markets through the current coronavirus and oil price war crisis, with the stock currently down by about 8% since early February (through end of week March 13), after the WHO declared a global health emergency. In comparison, the S&P 500 is down by about 19%. On the face of it, Walgreens stands to benefit in this crisis, led by an increase in demand of OTC and retail products, including sanitizers, soaps, and sanitary products. Interestingly, even in the 2008-09 crisis, Walgreens’ stock outperformed the broader markets, something we detail in our interactive dashboard analysis on 2007-08 vs. 2020 Crisis Comparison: Walgreens Boots Alliance’s Stock Compared To The S&P 500

On Thursday, March 12, the stock markets saw their biggest sell off since 1987’s Black Monday. There were two distinct trends driving the sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 30% after Saudi Arabia increased production. Walgreens stock fell around 9% over the last 5 trading sessions, as well as since early February, considering the impact that the outbreak and a broader economic slowdown could have on the company’s sales.

It is not that Walgreens’ stock was at its peak before the current crisis. In fact, it has seen a decline of around 35% since early 2019, as the company faced challenges in the UK market. While its retail segment, which includes the company’s retail sales of prescription drugs, and consumer healthcare products, saw sales grow slightly from $33 billion in fiscal 2015 to $35 billion in fiscal 2019, any significant growth is unlikely in the near term, as the company could close some of its stores in UK, amid increased competition from online specialists. Walgreens EPS also saw a modest decline y-o-y in fiscal 2019, and we estimate it to see a slight decline in fiscal 2020 as well, as detailed in our Walgreens Valuation dashboard. However, if the company does see an uptick in retail sales in the near term, due to the coronavirus outbreak, it could aid the stock price growth in the near term.

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Walgreens Stock versus S&P 500 Over 2020 Coronavirus/Oil Price War Crisis

  • Walgreens Boot Alliance’s stock declined by about 9% between Monday, March 9th, and Friday, March 13th, and the stock is down by about the same 8% since February 1st, after the WHO declared a global health emergency.
  • The S&P 500 declined by 9% between Monday, March 9th, and Friday, March 13th, and it has fallen by 19% since  February 1st.
  • In comparison, CVS Health stock declined by about 7% over the last 5 trading sessions, and the stock is down by about 12% since February 1, after the WHO declared a global health emergency.
  • We also compare the current coronavirus crash to 4 other market crash here.

Walgreens versus the S&P 500 During 2007-08 Financial Crisis

  • WBA stock declined from levels of around $36 in October 2007 (the pre-crisis peak) to levels of around $21 in March 2009 (as the markets bottomed out) and recovered to levels of about $33 in early 2010.
  • Through the crisis, WBA stock declined by as much as 40% from its approximate pre-crisis peak. This marked a slightly narrower decline as seen in the broader S&P, which fell by as much as 51%.
  • WBA stock saw massive recovery from the lows, rising by over 53% between March 2009 and January 2010. The growth was slightly higher than the S&P, which rose by about 48% over the same period.

Conclusion

  • While Walgreens Boots Alliance stock has declined due to the coronavirus and oil price war crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back strongly, as the crisis winds down, and the growth from lower levels could potentially be much faster than the broader S&P.

For more detailed charts and a timeline of the 2008 and 2020 crisis for different stocks, view our interactive dashboard analyses on coronavirus.

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