Can the Dow’s worst-performing stocks turn things around in 2024?
pharmacy chain Walgreens Boots Alliance (NASDAQ:WBA) is on track to end the year as the worst performer among the 30 blue chip stocks in the Dow Jones Industrial Average. As of Dec. 28, it’s down about 29% year-to-date, with the next closest being Chevron (NYSE:CVX), down 15% in 2023.
Walgreens is scheduled to report its fiscal first quarter results on January 4, as it reports earnings a month earlier than most stocks. This will be new CEO Tim Wentworth’s first report, so investors will be watching it closely for insight into what to expect. Next year for Walgreens. Before we do that, it would be a good time to review where Walgreens is heading into the new year and review its outlook for 2024.
Cost savings of at least $1 billion
This year’s results weren’t great for Walgreens, but there were some positive signs. Sales increased nearly 5% year-over-year to $139 billion, with sales increases across all three segments: U.S. Retail Pharmacy and International and U.S. Healthcare. The problem is that high costs are eating into profits, leading the company to a net loss of $3.1 billion, or $3.57 per share, in fiscal 2023.
Management knows it needs to control costs, which is why it announced an aggressive cost-cutting plan earlier this year. The company plans to save at least $1 billion in costs and reduce capital expenditures by about $600 million. This is done in a variety of ways, including reducing head office-related costs, non-essential costs, contract work, or project work. Walgreens also plans to close unprofitable stores and shorten store hours in line with local market trends.
Interim CEO Ginger Graham said the company will use artificial intelligence to more accurately predict demand to optimize its transportation network and increase supply chain efficiency. Additionally, the company is implementing a centralized inventory system in an effort to improve customer service, simplify workflow and reduce excess inventory, and is opening regional micro-fulfillment centers to improve product availability and reduce total inventory levels. there is.
These initiatives are designed to reduce costs, but they are also necessary to shift focus to investments that improve efficiency and accelerate growth. “We are focused on accelerating profitability,” especially in the U.S. healthcare business, Graham said. Here comes our new CEO, Tim Wentworth.
Wentworth joined Walgreens on Oct. 23 from Cigna, where he was the founding CEO of Evernorth, Cigna’s health care organization. Prior to that, he was CEO of Express Scripts, the largest pharmacy benefits manager in the United States.
“WBA has a differentiated model to advance healthcare delivery based on the company’s pharmacy strengths and trusted brands,” Wentworth said in making the hire. “I believe in WBA’s vision to be a leading partner in reimagining local health care and wellness for all.”
Processing may take some time
Graham said in the company’s fiscal fourth-quarter earnings report that the impact of its cost-cutting plans on profitability will not be seen until the second quarter of 2024. Overall, the company expects revenue growth of 1% to 4% next year, with adjusted operating income of $3.4 billion to $3.7 billion, little change compared to fiscal 2023.
One of the best things about Walgreens over the years has been its dividend, which has increased every year for 47 consecutive years. It is currently paying a huge return of 7.1% with a payout ratio of 48%. The financial difficulties Walgreens has experienced over the past year have resulted in lower earnings and cash flow, but the company said it continues to work to maintain its dividend.
The final thing about Walgreens I’ll mention is valuation. It’s very cheap, with a forward price-to-earnings ratio of just under 8, but there’s good reason for that, as there hasn’t been much earnings growth.
Although Walgreens appears to be on the right track with the steps it is taking, the transition takes time and requires execution. It’s not a stock to buy right now, but I don’t think the price will rise much. So we can monitor our progress over the next few quarters to see if and when things start to change.
