The global pharmacy chain, Walgreens, has appointed industry veteran Tim Wentworth as its new chief executive. This move comes at a crucial time for the company, as it faces declining earnings that are well below the targets set by the executive team two years ago.
Walgreens, which owns Walgreens and Duane Reade stores in the U.S. and Boots stores overseas, is encountering significant challenges within its core U.S. pharmacy business. Additionally, the company has made substantial investments in a primary and urgent care chain that is not expected to turn a profit for several years.
Despite offering an impressive dividend yield of 8.4%, according to FactSet, shares of Walgreens have declined by 40.1% this year. Analysts have raised concerns about the sustainability of this dividend yield.
“The company is in a deep hole,” stated Raymond James analyst John Ransom in a recent note.
Tim Wentworth, who previously served as the CEO of Cigna’s division that includes its pharmacy benefit manager, brings valuable industry expertise to his new role. Prior to joining Cigna, Wentworth was the CEO of Express Scripts, which was later acquired by Cigna in 2018.
Although analysts expressed support for Wentworth’s appointment after his name was mentioned in a Bloomberg report last month, his leadership comes with great challenges. The announcement comes just before Walgreens is set to release its fourth quarter and fiscal 2023 financial results on Thursday.
Walgreens Faces Challenges Ahead
Analysts Predict Lower Earnings for Walgreens in Q4 2023
According to Wall Street analysts, Walgreens is expected to report a decline in fourth-quarter earnings for 2023. The projected earnings per share are $0.69, compared to $0.80 in the same quarter last year. Additionally, analysts anticipate a decrease in full-year fiscal 2023 earnings, with a predicted value of $4 compared to $5.04 in 2022 and $4.91 in 2021. Sales for the quarter are expected to reach $34.8 billion.
Performance Comparison: Walgreens vs. S&P 500
Over the last five years, Walgreens shares have experienced a significant drop of 70.3%. In contrast, the broader S&P 500 index has seen a remarkable climb of 55.7%.
Analyst Recommendations for Walgreens
In response to these trends, various analysts have provided their insights on Walgreens. Mizuho analyst Ann Hynes, who maintains a neutral rating on the company, lowered her target price from $31 to $25. Similarly, J.P. Morgan analyst Lisa Gill, also holding a neutral rating, reduced her target price from $33 to $27 on October 5th.
Raymond James’s analyst, Ransom, suggested that Walgreens should discontinue its strategy of retail store leasebacks, previously viewed as a “clever way to engineer EPS.” Additionally, he emphasized the need for the company to reevaluate its dividend structure and slow down expansion plans for its new primary care chain.
Delayed CEO Transition Raises Investor Speculation
Despite these developments, the transition of Walgreens’ new CEO, Wentworth, will not take place until October 23rd. As a result, investors may have to wait before gaining insight into his plans for the company. However, they will eagerly look for guidance on Walgreens’ 2024 fiscal year and potential adjustments to expectations.
Walgreens Stock Performance
On Wednesday afternoon, Walgreens stock experienced a modest increase of 1.1%.
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