Walgreens Could Offer Profitable Short Sales

Walgreens Boots Alliance Inc. (WBA) forced market speculators to take notice in the second half of 2019, rallying on reports the $45-billion drug chain was holding preliminary talks with private equity firms to ‘go private’. Unfortunately, the worst long-term performer in the Dow Jones Industrial Average couldn’t finalize a deal and turned sharply lower, ending 2020 with a negative 38% return. However, things are looking better so far in 2021, with the stock up near 30%.

Losing Market Share to Amazon

The pharmacy chain reports fiscal Q3 2021 results next week, with Wall Street analysts looking for a profit of $1.18 per-share on $33.8 billion in revenue. If met, earnings-per-share (EPS) will mark a 42% profit increase compared to the same quarter last year, which included the pandemic lockdown. The stock topped out a week after raising fiscal 2021 guidance in March and has drifted lower during the second quarter.

Amazon.com Inc. (AMZN) has hurt pharmacy chain income in recent years, with formerly loyal customers loading up on all sorts of front-of-store items online. Unfortunately, the e-commerce juggernaut is now getting into the pharmacy business, with a new division that makes “at-home delivery pharmacy easier and more convenient for customers.” Recent reports also indicate the company is looking at opening brick-and-mortar pharmacies in direct physical competition.

Wall Street and Technical Outlook

Wall Street consensus is locked in glacial ice at a ‘Hold’ rating, based upon 1 ‘Buy’, 1 ‘Overweight’, 17 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $37 to a Street-high $72 while the stock is set to open Tuesday’s session about $5 below the median $56 target. Gravity could easily take control in this configuration, especially if Walgreens fails to meet or exceed Q3 expectations.

The stock topped out in 2015 and entered a persistent decline that’s carved an endless series of lower highs and lower lows. The current advance stalled at 50-month moving average resistance at the start of the second quarter while price is now sandwiched between that level and support at the 200-month moving average. A breakdown through that trading floor will set off a major sell signal that could generate profitable short sales, given the stock’s southern trajectory in recent years.

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Disclosure: the author held Amazon in a family account at the time of publication.