Don’t Buy Walgreens — The Pandemic Is Only One Of Its Problems

Walgreens (NASDAQ:WBA) reported fourth-quarter earnings this week. The company managed to beat Wall Street estimates for the quarter, resulting in WBA stock seeing a 4.9% pop. However, all that means is that profit wasn’t affected as badly as expected. The company says the novel coronavirus will continue to have a negative impact on its operations moving forward, but profit should return to low growth by the second half of 2021.

Walgreens (WBA) store exterior and sign in Pompano Beach, Florida
Source: saaton /

I think that’s an optimistic projection. And even if it does, Walgreens — which has an “F” rating in Portfolio Grader — has been a terrible performer for several years. It’s got bigger problems than the pandemic.

WBA Stock in the Fourth Quarter

On Oct. 15, Walgreens announced its Q4 earnings. Revenue of $34.75 billion was up 2% year-over-year (YOY). Profit of $373 million was down 44.9% YOY. Adjusted earnings per share of $1.02 was down substantially from the $1.43 last year. However, WBA stock popped in the aftermath. 

Why? Because analysts were expecting the company’s bottom line to be even worse.

Wall Street had adjusted EPS pegged at 96 cents for the quarter. So, the quarter was bad, but not as bad as was guessed. Also fueling the WBA jump was guidance for “low single-digit growth in adjusted EPS” in 2021.

Walgreens expects the pandemic to continue its adverse effect through the first half of 2021, but is counting on “strong adjusted EPS growth” in the second half of the year, based on the assumption that the pandemic will be under control by then.

At least that’s better than the company’s third-quarter results, which were bad enough to send WBA stock plummeting in July. But it’s no reason to get overly excited about the company kicking off into growth mode. 

Threat of Online Prescriptions

Naturally, much of the pain that Walgreens has felt in 2020 can be chalked up to the novel coronavirus. However, there’s a bigger problem that the company faces, and it’s not going to go away with a vaccine.

Before the pandemic, e-commerce companies had already been eating into store sales — consumers had begun snapping up retail items online instead of walking to their neighborhood pharmacy. But that competition entered a new phase when e-commerce stalwarts and new startups alike decided it was time to disrupt the traditional pharmacy model altogether.

Online prescriptions offer a new level of convenience to consumers. In response, the company pivoted to begin offering its own online prescription service, but that’s going to be tough slogging. E-commerce companies will put pricing pressure on Walgreens, and they have extensive, nation-wide distribution and delivery networks already in place.

Bottom Line

The time to buy WBA stock was back in 2012. From December of that year through mid-2015, it seemed unstoppable. WBA posted gains of nearly 200% over two and a half years. But a failed acquisition and other hiccups derailed that streak. There was a big rally in the second half of 2018, but it’s been downhill since then for shares.

At this point, shares in Walgreens are worth less than half of what they were at the end of 2018. Even after the post-Q4 spike, the company’s still down 36% so far in 2020.

Shares are cheaper than they’ve been in nearly eight years, but I see little chance that WBA stock is going to experience meaningful growth any time soon. Like many, the company is still hurting from the novel coronavirus. And with such instability, a return to “low single-digit” profit growth in the second half of 2021 could easily be derailed if an effective Covid-19 vaccine isn’t in play.

Even assuming everything goes right on that front, there are big storm clouds on the horizon. Both the pandemic and e-commerce have this company on the ropes.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.

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