Key Takeaways
Talk of a sale has propped up shares of Walgreens lately. One research team is downbeat about a deal.
A buyout—as outlined in a recent Financial Times story—would be “incredibly complicated" and unlikely to value shares at or above, their current price, Deutsche Bank analysts wrote in a note Friday. The team recommended selling Walgreens Boots Alliance ( WBA ) shares and cut its price target to $9. The stock was recently down some 5% to below $11.
"The shares have run too far on the transaction speculation,” the note said. “We have seen this scenario before in the healthcare space, where deal reports have driven the share price to overshoot what a sponsor is willing to pay.”
The analysts said Walgreens shares sold for about $9 to $9.50 leading up to December, when the Financial Times reported that the company was exploring a sale to Sycamore Partners, a private equity firm. Shares climbed, hitting about $13 in mid-January.
A transaction could pave the way for turning each of Walgreens’ major business units into its own company, including: the U.S. pharmacy chain, Walgreens; the United Kingdom business Boots; and the Shields Health Solutions specialty pharmaceutical division, the Financial Times reported this week.
Deutsche analysts said the company’s namesake U.S. business would be “especially challenged.” Retail pharmacy fundamentals have eroded, they said, and the U.S. division may bear the brunt of a potential tax liability and any penalties levied in an opioid investigation.
Walgreens announced in October that it plans to shut about 1,200 stores as part of a turnaround plan. It recorded a net loss of $256 million in its most recent quarterly earnings, but a $440 million profit after adjusting for store closures and shifts in investment values.
Deutsche estimates Walgreens shares would be valued at about $9 in a sale, meaning Sycamore would likely pay less than what shares are currently trading for—or walk away.
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