Walgreens Boots Alliance stock (NASDAQ: WBA) has seen an 8% rise in a month, while it’s down 21% year-to-date. Although it reported upbeat Q3 results on Jun 30, the stock declined due to rising concerns over a sales decline with a lower contribution from the Covid-19 testing and vaccine administration. WBA stock fell to its 52-week low of under $37 on July 14 before seeing a rebound to $41 currently. This can partly be attributed to oversold conditions for WBA and a rebound in the broader markets, with the S&P 500 index rising 13% over the same period.
Some Wall Street analysts have lowered their price target for WBA over recent months, owing to multiple factors, including the contribution from vaccine administration and the weakness in international business, among others. The company’s international business has been a drag on its performance, with total sales (pharmacy and retail) declining 7% between 2019 and 2021. The rise of online and discount pharmacies has resulted in stiff competition, weighing on Walgreens’ international business. The company wanted to divest its Boots U.K. business but later announced that it no longer intends to sell it. This decision was driven by a weakness in the financial markets and the company not receiving bids in line with its expectations. Amazon’s entry into pharmacy doesn’t bode well for retail pharmacies either. Walgreens is now focusing on expanding its online and primary care offerings to aid revenue growth.
Despite these headwinds, we believe that WBA stock has room for growth. We estimate Walgreens’ valuation to be $47 per share, reflecting a 15% upside from its current market price of $41. At its current levels, WBA stock is trading at 8x its expected forward earnings, compared to the last three-year average of 10x, implying that the stock is attractive from a valuation viewpoint.
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However, will WBA stock also see gains in the near term, given that it has seen a rise of 8% in a month?
We don’t think so.
Going by historical performance, there is a low chance of an increase in WBA stock over the next month. WBA stock has seen a rise of 8% or more in a month 189 times in the last eight years. Of those, only 63 resulted in WBA stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 63 out of 189, or about a 33% chance of a rise in WBA stock over the next month. See our analysis of Walgreens Boots Alliance Stock Chance of Rise for more details.
Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using the last eight years’ data
- After moving 4% or more over five days, the stock rose on 37% of the occasions in the next five days.
- After moving 3% or more over ten days, the stock rose on 42% of the occasions in the next ten days.
- After moving 8% or more over a twenty-one-day period, the stock rose on 33% of the occasions in the next twenty-one days.
This pattern suggests a higher chance of a fall in WBA stock over the next five, ten, and twenty-one days, implying that investors may be better off waiting for lower levels to enter the stock.
Walgreens Boots Alliance (WBA) Return (Recent) Comparison With Peers
- Five-Day Return: CVS highest at 4.2%; SYY lowest at -1.8%
- Ten-Day Return: CVS highest at 10.7%; SYY lowest at -1.0%
- Twenty-One Day Return: AMZN highest at 26.1%; SYY lowest at -2.8%
While WBA stock may see lower levels in the near term, it is helpful to see how Walgreens’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Target vs. Emergent Biosolutions.
|S&P 500 Return||4%||-10%||92%|
|Trefis Multi-Strategy Portfolio||8%||-7%||268%|
 Month-to-date and year-to-date as of 8/16/2022
 Cumulative total returns since the end of 2016