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What Happened?
Shares of pharmacy chain Walgreens Boots Alliance (NASDAQ:WBA) jumped 13.5% in the morning session after CNBC's David Faber said that a potential deal between the company (Walgreens) and private equity firm Sycamore Partners "was showing signs of life." The stock's reaction is lifting investors' optimism as markets continue to digest the long-term implications of its recent dividend suspension (first time in over 90 years) and lawsuit with the Department of Justice.
The shares closed the day at $11.05, up 13.9% from previous close.
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What The Market Is Telling Us
Walgreens’s shares are very volatile and have had 22 moves greater than 5% over the last year. But moves this big are rare even for Walgreens and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 18 days ago when the stock dropped 17% on the news that the company announced it is suspending its dividend for the first time in over 90 years. The move to suspend the dividend is a part of the turnaround efforts to improve the balance sheet by reducing debt and improving free cash flow. Though a cut was expected, a complete suspension of the dividend is a surprise given the company's long history of paying one. Even with this move, the path to positive free cash flow in fiscal 2025 is still murky. Store footprint optimization costs, impending debt maturities, and limited upside in the core business in the near term are headwinds.
Walgreens is up 20.2% since the beginning of the year, but at $11.05 per share, it is still trading 50.5% below its 52-week high of $22.31 from February 2024. Investors who bought $1,000 worth of Walgreens’s shares 5 years ago would now be looking at an investment worth $213.07.
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