Shares of Walgreens Boots Alliance (WBA, Financial) tumbled by 8.82%, driven by heightened concerns over recent developments in the pharmaceutical landscape. At the heart of this decline are the initiatives taken by major pharmaceutical companies, Pfizer and Eli Lilly, which could negatively impact Walgreens' retail pharmacy business.
Pfizer launched its direct-to-consumer telehealth and e-commerce platform, Pfizerforall, which aims to simplify healthcare access for common illnesses such as migraines, COVID-19, and the flu. Concurrently, Eli Lilly announced a significant price reduction of 50% for its GLP-1 drug Zepbound when purchased through its LillyDirect e-commerce platform. These strategic moves by Pfizer and Eli Lilly raise apprehensions among investors about the potential erosion of Walgreens' drug prescriptions revenue.
Although Walgreens is considered a potential partner for Pfizerforall, the looming threat of losing more drug sales to direct purchasing channels seems to outweigh the potential benefits.
Delving into the stock analysis and valuation reveals several key insights about Walgreens Boots Alliance. The stock price is notably close to its 10-year low, with a Price-to-Book (PB) Ratio of 0.6 and a Price-to-Sales (PS) Ratio of 0.06, both metrics indicating that the shares are trading at significant discounts relative to historical valuations.
However, it's essential to note some severe warning signs associated with Walgreens. The Altman Z-Score of 1.64 places the company in a distress zone, implying a heightened possibility of bankruptcy within the next two years. Additionally, the company's Gross Margin has seen a long-term decline, averaging a reduction of 3.4% per year, which is another red flag for potential investors.
On the positive side, the company's Beneish M-Score suggests that Walgreens is unlikely to be involved in financial manipulation, enhancing trust in its reported figures. Moreover, based on the GF Value, Walgreens Boots Alliance is valued at 39.29, but it's flagged as a potential value trap, indicating that despite its low valuation metrics, caution is advised.
Overall, while Walgreens Boots Alliance appears undervalued, the confluence of competitive pressures from direct-to-consumer platforms and intrinsic financial challenges suggest a cautious approach for potential investors.
