Walgreens Stocks Dip Amid Skepticism Over Buyback Plan
Walgreens Boots Alliance Inc. shares fell by more than 6% after analysts expressed skepticism about the likelihood of a successful acquisition by Sycamore Partners. This decline followed a surge of up to 28% on Tuesday as discussions regarding a potential sale of the company's stock to the private equity firm continued.
Analysts from Leerink, who maintain a market performance rating, highlighted the complexity of the situation. Michael Cherny from Leerink noted that multiple factors are at play, particularly in terms of free cash flow generation, making it challenging to provide straightforward answers to questions about the potential acquisition. Cherny suggested that the deal could involve asset divestitures or real estate monetization efforts but indicated that the latter could be difficult due to Walgreens' past sale-leaseback transactions.
Morgan Stanley, which has a low weighting rating on the stock, also weighed in on the matter. Analyst Erin Wright acknowledged the context of a potential sale in a challenging pharmacy environment but questioned the feasibility of an acquisition. Wright cited Walgreens' significant debt and limited cash flow as obstacles to establishing a clear path to value creation through such a transaction.
Raymond James, which provides a market performance rating, expressed surprise at the sale discussions considering Walgreens' financial outlook. The firm's analyst pointed out that Walgreens' declining earnings and cash flow expectations, approximately $15 billion in liabilities (including net debt and opioid-related obligations), other costs associated with store closures, and a significant working capital deficit complicated financing a deal. Based on the current stock price, the analyst estimated that the market anticipates an approximately 13 times pro forma EBITDA multiple for Walgreens' U.S. Retail Pharmacy business, which he noted is generous even when factoring in valuations for the International segment and Shields.
TD Cowen, which has a buy rating on Walgreens, presented a slightly more optimistic outlook. Analyst Charles Rhyee discussed the possibility of an acquisition but noted that there is a lack of clarity on what a private equity firm could do to expedite the company's recovery. Rhyee's analysis of the sum of the parts and leveraged buyout suggests that a private equity firm would need to rely on the ability to manage the performance of the U.S. Retail segment to be equal to or better than the current management plans.
Investors and market observers continue to closely monitor the situation, focusing on the potential impact of any acquisition on Walgreens' future operations and financial health.