What Happened?
Shares of pharmacy chain Walgreens Boots Alliance (NASDAQ:WBA) fell 17% in the morning session after 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.
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What The Market Is Telling Us
Walgreens’s shares are quite volatile and have had 19 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 10 days ago when the stock dropped 12.3% on the news that the US Department of Justice accused the company (Walgreens) of filling millions of unlawful opioid prescriptions. According to the complaint, Walgreens overlooked major red flags and pressured pharmacists to dispense these medications, then sought reimbursement from federal programs in violation of the False Claims Act. Although Walgreens denies any wrongdoing, the stock's reaction suggests investors are wary of the uncertainty this legal battle may create.
Walgreens is up 14% since the beginning of the year, but at $10.48 per share, it is still trading 54.9% below its 52-week high of $23.25 from January 2024. Investors who bought $1,000 worth of Walgreens’s shares 5 years ago would now be looking at an investment worth $206.10.
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