A dirt cheap valuation is at the core of the lofty price target.
It’s been a difficult decade for investors in retail and pharmacy company Walgreens Boots Alliance (WBA -1.18%). The stock has been trending downward for years as persistent challenges soured market sentiment.
An analyst at TD Cowen remains optimistic that Walgreens stock could see a major rebound. While TD Cowen reduced its price target from $37 to $35 today, it maintained a buy rating on the stock. Based on the current stock price, the new price target implies an upside of about 87%.
Favorable risk/reward
While the TD Cowen analyst doesn’t expect Walgreens’ results to necessarily improve, a favorable risk/reward trade-off is at the foundation of the lofty price target. Walgreens narrowed its full-year guidance in March to reflect a “challenging retail environment in the U.S.” and a few other issues. This new target is achievable, according to TD Cowen.
Walgreens now expects to report adjusted earnings per share between $3.20 and $3.35 in 2024, while it continues to expect the U.S. healthcare business to break even on an adjusted EBITDA basis. The bottom line has fallen off a cliff over the past few years. Walgreens reported adjusted EPS of $4.91 in 2021.
While earnings are in decline, the TD Cowen analyst isn’t wrong about a sizable potential upside if the company can hit its targets. At the midpoint of Walgreens guidance range, the stock trades at a price-to-earnings ratio below 6.
Is Walgreens stock a buy?
While an 87% surge in Walgreens stock is certainly possible, buying a stock solely because its valuation has been beaten to a pulp can be a recipe for disaster. Walgreens stock has looked cheap for years, and the only thing investors have gotten in return is a tumbling stock.
Walgreens might be a solid turnaround play. The company appointed a new CEO in October, and he’s already made some tough decisions like slashing the dividend to preserve cash. But the stock still looks risky.
Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
