Shares of pharmaceutical titan Walgreens Boots Alliance (WBA) suffered a sharp decline on Tuesday following a decision by investment banking corporation TD Cowen to reduce its price target for the stock from $16 to $14. Analysts at Cowen stated that their less favorable view of the Walgreens stock stems from a slashing of the profit forecast for fiscal 2025. They lowered their annual prediction for the drugstore network's adjusted earnings per share (EPS) to $1.54 from $1.71, accounting for the financial consequences of the expected shutdowns of retail outlets.
Even though the team of analysts project a further drop in EPS year-on-year in fiscal 2026, they also estimate that Walgreens should bounce back into profit growth by fiscal 2027. Walgreens shares saw a 6.9% drop to close on Tuesday at $9.73.
These revised estimates by TD Cowen encompass the expected financial repercussions of Walgreens' plan meant to rejuvenate its stateside business. The plan involves the closure of approximately 1,200 underperforming stores during the next three years.
The company unveiled its plans to shut down around 500 sites in fiscal 2025 conjointly with its fiscal fourth-quarter 2024 earnings report on October 15. The company stated that the early closures would directly enhance the adjusted EPS and free cash flow.
In the immediate aftermath of these plans being made public, the market sentiment appeared to shift positively, with Walgreens shares leaping more than 15% on October 15. The positivity was amplified by a strong earnings report released on the same day, surpassing anticipated revenue and adjusted profit figures.
However, following Tuesday's price target revision and lower income projections from TD Cowen, doubts are now being voiced about the profitability boost for Walgreens from these closures. Even though there was a brief surge after the recent earnings release, Walgreens shares have been seeing a downward trend through 2024 due to a challenging operational environment. Following Tuesday's losses, Walgreens shares have depreciated 63% over the course of the current year.