The Walgreens share price is up 30% in 2021. Should I buy?

The Walgreens share price is having a good run. But will this continue. Here I take a closer look at the pharmacy giant.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Walgreens Boots Alliance (NASDAQ: WBA) share price has jumped over 30% since the beginning of the year. The stock is also up 30% during the past 12 months. But on a five-year view, the shares are down 30%.

So is now a buying opportunity? I’m not convinced it is. Clearly the Walgreens share price has seen a recent uptick. But I think there are problems the company needs to sort out before I dip my toe in.

Walgreens: an overview

Walgreens is a global retailer and pharmaceuticals firm. It’s known for dispensing and distributing medicines through its retail stores and digital platforms, as well as for selling cosmetics products. 

It operates Walgreens and Duane Reade shops in the US. In Europe and Asia, the pharmacy giant runs Boots stores. In terms of international wholesale and distribution networks, it works under the Alliance Healthcare banner.

It also has global health and beauty brands. These include No7, Soap & Glory, Liz Earle, Botanics, Sleek MakeUP and YourGoodSkin.

Bull case

I think one of the reasons why the Walgreens share price has been rising is due to the pandemic. The company is conducting Covid-19 tests and vaccinations at its stores, especially in the US.

This increase in footfall should help drive sales. But also the general recovery should act as a tailwind too. Higher pharmacy footfall should get customers through the doors of to buy its other products.

Walgreens’ shops also sell snacks and beverages as well as its own health and beauty brands. These products carry higher margins, which should benefit from the increase in footfall.

The company is accelerating its move to digital having recognised that it has trailed its competitors. It’s currently ramping up the use of technology across its business. In fact, despite the Boots chain having struggled, in Q2, its e-commerce business saw sales doubling and Boots gained beauty market share.

In its second quarter results, the company indicated that it’s on track to deliver in excess of $2bn in annual cost savings by the 2022 financial year. If this is executed, it should boost profitability.

Bear case

I’m concerned that the firm is facing fierce competition. The pharmaceutical industry is being disrupted. Healthcare is becoming digital and there are many companies that are pushing into the sector.

Even Amazon is dipping its toe in the market, which could impact the Walgreens share price. I don’t think this online threat is going away any time soon and it could hinder the company’s growth prospects.

My other concern is that the pharmacy giant does not have a good track record when it comes to profitability. Margins have been decreasing over the years. And it does not help that there is a large amount of debt on the balance sheet too.

So if margins are weak and it’s paying a dividend, I’m unsure how it will make a dent in its debt pile from excess cash flow. Also there is no guarantee that the pick-up in sales due to the coronavirus crisis will continue after the pandemic.

For now, I’ll monitor the Walgreen share price. But I reckon there is still a lot of work the company needs to do.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Nadia Yaqub has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »