Walgreens Perfect Play for the January EffectAmerisourceBergen will acquire the majority of Walgreens’ Healthcare businesses for $6.275 billion and two million ABC shares.
Dow component Walgreens Boot Alliance Inc. (WBA) reports Q1 2021 earnings in Thursday’s pre-market session, with Wall Street analysts expecting a profit of $1.04 per-share on $35.01 billion in revenue. If met, earnings-per-share (EPS) will mark a 24% profit decline compared to the same quarter in 2019. The stock ticked higher after beating Q4 top and bottom line estimates in October and has added a few more points into January 2021.
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Waking Up from the Dead
The drug chain is one of the Dow Industrial’s worst long-term performers, losing nearly 40% since it was added to the Average in June 2018. It posted a stomach-churning negative 32% return in 2020 but that’s now good news because the stock has become an attractive January Effect buying candidate. It’s also starting to wake up from the dead, just announcing a key divestiture and partnership intended to shore up a troubled balance sheet.
AmerisourceBergen (ABC) will acquire the majority of Walgreens’ Healthcare businesses for $6.275 billion and two million ABC shares. In addition to the acquisition, the companies will strengthen their “strategic partnership by extending and expanding their commercial agreements”. The current distribution agreement will be extended to 2029 while the partnership includes a “commitment to pursue additional opportunities in sourcing and distribution”.
Wall Street and Technical Outlook
Wall Street consensus is as bad as it gets for a Dow component, with a ‘Hold’ rating based upon 6 ‘Hold’ and 1 ‘Sell’ recommendation. Not one analyst is recommending that investors buy Walgreens at this time. Price targets currently range from a low of $40 to a Street-high $44 while the stock has opened Wednesday’s U.S. session less than $1 above the median $41 target. These targets and ratings are likely to change after tomorrow’s quarterly confessional.
The stock topped out in the 90s in 2015 and lost two-thirds of its value into October’s 8-year 2020 low at 33.36. Accumulation fell to a two-year low at the end of December, highlighting persistent investor mistrust. However, price is acting well at 200-day moving average resistance, trading above that barrier four times since Nov. 10. This persistence is paying off, establishing the first monthly Stochastic buying signal since Sept. 2019.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.