Walgreens Stock Poised for a Surge: Can It Become the Next Carvana?
The stock market is a volatile place, and every now and then, a major brand name and its stock face a significant challenge. Sometimes, the price action and the company’s struggles are justified, and the business ultimately fails. Other times, however, a company can rebound dramatically, offering investors a chance to make life-changing gains. Today, one stock that presents this opportunity is Walgreens Boots Alliance (WBA), the healthcare sector retailer.
Trading at just 33% of its 52-week high, WBA is attracting attention from investors who see potential for a double-digit upside in the coming quarters. There’s even a chance for a catalyst to trigger a rally sooner than expected, particularly against the expectations of bearish traders.
Remember Carvana (CVNA)? This company, faced with the threat of delisting due to declining fundamentals, experienced a remarkable tenfold surge in just a few quarters, rallying from $7 per share to over $192. The key to Carvana’s success was decisive management action, and it’s a similar story that could unfold for Walgreens.
Investors Betting on Walgreens Stock Surge Ahead of Anticipated Major Announcement
While it’s not yet crystal clear, management at Walgreens is making significant changes ahead of their upcoming quarterly earnings announcement this week. Recognizing that the traditional brick-and-mortar business model is no longer sustainable, they’ve started closing down underperforming locations. This move, while expected to reduce overhead costs and lease debt, could also impact Walgreens’ revenue generation capacity in the future. This is the primary concern of bearish traders, who have pushed the stock’s short interest up to 13.3% of the total float.
However, these bears might be in for a surprise. Walgreens has announced double-digit growth in its digital product segment, driven by its Shields and VillageMD subscription-based businesses. These digital ventures are poised to expand Walgreens’ margins and earnings, offsetting some of the headwinds from physical location closures.
Another key benefit of this strategy is a reduction in capital expenditure needs. With fewer physical locations, Walgreens requires less inventory and faces lower overhead expenses. This frees up cash flow for the company to focus on more productive investments.
These announcements represent the more obvious elements of Walgreens’ strategy for the coming quarters, but there’s a more nuanced thesis that could be in play. Currently, Walgreens offers shareholders a dividend yield of 10.9%. This equates to over $1 billion in cash flows that could be used to revitalize the business. While cutting the dividend might seem like a negative move, it could ultimately be the right decision, even if it’s a difficult one.
Wall Street Signals Potential Rally for Walgreens Stock
Despite the uncertainty, Wall Street analysts are starting to reflect a more optimistic outlook for WBA stock. Their consensus price target for Walgreens is $13.5 per share, representing a potential 46.1% upside from current levels. But investors should pay attention to the outlier ratings that have emerged in recent months, as they provide a more nuanced perspective on sentiment surrounding the company.
TD Cowen, for example, reiterated their Buy rating on Walgreens, alongside a price target of $16 per share, indicating a significantly larger upside of 74% from today’s price. This further underscores the potential for a rally in Walgreens stock in the coming months.
Furthermore, institutional investors are expressing their confidence in Walgreens. Allocators like Compagnie Lombard Odier boosted their holdings in the stock by 33.2% as of October 2024, bringing their position to a net $119,000 ahead of the earnings announcement.
To gain deeper insights into the market’s expectations, investors can examine options activity surrounding Walgreens stock. The current options chain reveals that the highest open interest lies with $10 call options expiring just two days after the company releases its earnings report. With up to 22,056 contracts open for this strike price and expiration, it’s clear that traders believe a significant move could be in the cards for Walgreens this week.
With all these factors converging, it’s tempting to draw parallels with Carvana’s remarkable surge. But only time will tell if Walgreens can truly deliver a similar rally. The next few days will be crucial for investors to watch as Walgreens prepares to unveil its earnings report, potentially setting the stage for a significant move in the stock.