Amid slashing -56.92% of its total value this year, (and closing -3.11% on the week), Walgreens and its investors are looking for any kind of win they can these days. Especially considering that just last month, Walgreens kindly let everyone know how much of a crap shoot their finances are in as they plan to shut down 8,600 of it’s stores by 2027. Which is like a quarter of its entire U.S. footprint. 

(Source: Med City News) 

However, before Wall Street starts penning Walgreens obituary, there may be a silver lining that could offer a glimmer of hope for investors looking to capitalize (by glimmer, I mean the faintest light at the end of a very long, very dark tunnel). 

(Source: Giphy) 

You see, it’s no secret that Walgreens is in a financial spiral that makes the plot of “Inception” look straightforward. They (including their competitors like CVS) have been battling tight prescription reimbursement rates, rising operational costs, and a shift in consumer behavior that has people filling their prescriptions online rather than in-store (thanks Mark Cuban). 

(Source: Giphy) 

Now of course, Walgreens looked to address this issue by adding primary care clinics next to their pharmacies, however it’s since pulled back the effort since it failed to bolster its financial health. Which makes sense because despite reporting a slight revenue increase to $36.4 billion for the quarter ending May 31 (up $118 million year-over-year), they still missed analyst earnings expectations and had to cut their fiscal year forecast. 

(Source: Good Housekeeping) 

As expected the shares have tanked more than half of their value this year while the broader market indexes have been praying like it’s 1999. 

However, with all the negatives said, there may be one last drop of gas in the tank for Walgreens ahead. As CEO Tim Wentworth is trying to steer this Titanic away from the iceberg while cutting dividends to free up cash and focusing on core pharmacy operations - Walgreens has decided to take a page out of Elon and Tesla’s playbook of “How to Make Money From Something Other Than Your Core Business”. 

(Source: Walgreens) 

Because as of Thursday, Walgreens has officially sold another chunk of its stake in drug distributor Cencora for a nice $1.1 billion. The aim here is to use this new windfall of cash to pay down debt for quote on quote “general corporate purposes" which could inject some much-needed vitality into the business. 

Plus, given that Walgreens still holds a 10% stake in Cencora, this could end up being the financial backdrop Walgreens needs to not only get itself out of the hole… but simply keep the lights on.  

(Source: Giphy) 

In addition to this cherry on top payout, there are other reasons to be cautiously optimistic about Walgreens’ future. Stephanie Davis, senior equity research analyst at Barclays, is playing the world's tiniest violin for Walgreens, saying that while the macro backdrop and profitability headwinds in U.S. retail pharmacy are tough, management is taking the right strategic steps within U.S. healthcare. For instance, Walgreens decision to back away from the VillageMD primary care clinics, which have been a significant margin drag, could ultimately streamline operations.

(Source: Healthcare Dive) 

Peter Ax, CEO of UpScriptHealth, recently pointed out that the front and back of Walgreens stores are plagued with issues, from theft and staff shortages to supply chain disruptions and reduced margins. However, he also highlights a critical opportunity: the need for pharmacies to invest in innovative technologies and automation. Meaning, if Walgreens could leverage their new cash flow to increase automation and technology, they could set Walgreens apart from competitors… (especially if they can capitalize on digital health partnerships to increase prescription volume). 

(Source: Giphy) 

Plus, with Tim Wentworth’s new apparent vision fresher than the mints by a checkout counter, Hal Andrews, CEO of market research firm Trilliant Health, believes that Wentworth’s strategy of strengthening the core pharmacy business, particularly through specialty pharmacy offerings like cell and gene therapy services, could drive the financial turnaround. Wentworth’s statement that “pharmacy is the value-based healthcare provider in the ecosystem” underscores the potential for pharmaceutical interventions to deliver significant value, especially in high-demand areas like obesity treatment. 

(Source: Giphy) 

So with all of Walgreens financial situation laid out on the table, is it the retail equivalent of the Titanic, or is it about to pull a classic comeback? Well honestly, it could go either way. Walgreens is in trouble, there’s no doubt about it. But with some strategic moves and a bit of luck, there’s a chance they could turn things around. 

From my point of view, the stock chart is what really looks enticing (especially in the short-term). Despite the massive drop off from $70 back in 2015 to Friday’s close of $11.48, Walgreens has officially taken the last major area of liquidity at $13.37. 

Meaning, in the essence of traders involved, a large number of bullish stop-losses have just been triggered freeing up quite a bit of liquidity for smart money players to get involved. Now we can all say that fundamentals move the markets, which is true, but we also can’t dismiss the fact that Wall Street algorithms and high frequency traders have a hand in pushing prices to specific areas that puts the odds of them getting in at good prices in their favor. Translation: Wall Street algorithms and high-frequency traders are playing 4D chess while the rest of us are eating checkers.

(Source: Giphy) 

This could be the scenario regarding Walgreens stock right now. Liquidity has just been freed up at extremely low prices, buyers are out, and now institutions can drive prices up to offload their winnings to buyers who want to step back in at higher prices… because, again, it’s always retail that gets left holding the bag. (Think, buy the rumor, sell the news). 

So in the end, the short-term may have some more legs to run when it comes to Walgreens stock. But still, don’t hold your breath too much. With Walgreens changing things up in its operations, combined with the nice $1.1 billion payout from Cencora and interesting price action at cheap levels… keep an eye on Walgreens. The stock may end up shocking us all here soon. 

Stocks.News holds positions in Tesla as mentioned in the article.