Walgreens Boots Alliance, Inc. (NASDAQ:WBA) is currently navigating turbulent waters, facing a slew of legal and financial challenges that have raised concerns among investors and analysts alike. The company’s shares had been trading at $10.28 when a bearish thesis was published on ValueInvestorsClub just prior to a market closing value of $11.12 on March 20, 2025.
Jim Cramer, famed host of Mad Money, highlighted Walgreens in his discussions on March 17, asserting that the confidence in its potential had significantly weakened. "No, it’s over. They’ve got a deal, they’ve got a terrific deal with Sycamore. It just, Mr. Wentworth gave you the best he could and I would just take the, what your position you have off the table and go by Costco, which I think is not gonna need any help whatsoever," Cramer stated, urging investors to reconsider their holdings in the beleaguered company.
Echoing some of Cramer’s sentiments, analysts point to the broader market context, evidenced by a sharp correction in the S&P 500, marking a downturn of over 10% as of the previous week. Cramer remarked, "Let’s establish what we’ve been through, a correction, that’s what we’ve been through. It’s a technical term, meaning a drop of more than 10%, which is what we had in the S&P 500 as of last Thursday." This downturn, coupled with growing fears of a recession triggered by government actions, has led to increased scrutiny of companies like Walgreens.
As if the challenges weren't enough, on March 21, 2025, a class action securities lawsuit was filed against Walgreens that potentially threatens its long-term viability. This legal action stems from alleged securities fraud impacting shareholders from April 2, 2020, to January 16, 2025. The complaint alleges that Walgreens not only misled the public about its adherence to federal laws concerning the dispensation of prescription medications but that it engaged in practice violations that undermined its revenue sustainability.
The allegations against Walgreens include making false statements regarding its commitment to regulatory compliance, which could result in intense regulatory scrutiny and significant financial penalties. The lawsuit, if proven, could lead to penalties ranging from $1 billion to $10 billion, closely aligning with the company's overall market capitalization.
In another troubling financial development, Walgreens has suspended its quarterly dividend of $0.25, a decision that signals priorities shifting towards stabilizing its cash flow amidst mounting pressures. WBA's gross margins have already decreased from 21.8% in 2022 to 18% in 2024, with projections indicating further declines to 16% by 2027. The drop in margins can be attributed to the increasing costs associated with generic drugs and a reduction of pharmacy reimbursement rates being implemented by Pharmacy Benefits Managers (PBMs).
Compounding these issues is Walgreens’ financial structure, which reveals a troubling forecast for the near future. With $4.7 billion in debt maturing between 2025 and 2026, the company faces an estimated increase in interest expenses to $190 million due to the higher rates of new debt expected to cost around 8% rather than the current average of 4%. This precarious financial setup raises alarms about the company's cash flow capabilities, which could soon turn negative if additional penalties or fines become a reality.
As Cramer pointed out, marketplace uncertainties have left many business leaders feeling apprehensive about the economic landscape, which only intensifies existing fears surrounding Walgreens. The stark reality is that the firm's operational reliability has diminished in the eyes of investors. Analysts suggest that until Walgreens pivots its strategy significantly—especially in dealing with its debt and attaining sustainable revenue growth—the outlook will remain bleak.
In light of these challenges, while some investors still perceive potential value in Walgreens, opinion pieces from various market experts reflect a growing inclination towards artificial intelligence (AI) stocks that promise greater returns within shorter timeframes. As noted by sources, "our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame.”
The current narrative surrounding Walgreens Boots Alliance paints a concerning picture; from potential legal liabilities and a shuttered dividend to declining margins and the looming threat of a recession, it’s hard to ignore the air of uncertainty. As of now, WBA stands at a critical crossroads, and the next few quarters will be pivotal in determining whether it can navigate successfully through these tumultuous waters.
