3 Reasons Why Walgreens Boots Alliance Stock Can’t Be Condemned

Walgreens Boots Alliance (WBA -0.33%) it is a very risky stock to own right now. The drugstore retailer has struggled with profitability, sales growth hasn’t been easy, and its future is a big question mark at the moment.

This will not be a suitable investment for most given the risk involved. But if you’re looking for a possible contrarian investment, below I’ll list reasons why stocks could turn things around. It may not be very likely or likely to happen, but here’s why the stock may not necessarily be doomed.

1. The company has a lot of stores and assets that it could liquidate

Selling assets is not a terribly good sign for a business, especially if it is necessary to increase cash flow. But with Walgreens, the company may be a little bloated with more stores than it needs. Closing some could streamline operations and improve profitability. Earlier this year, new CEO Tim Wentworth said the “current pharmacy model is not sustainable” and suggested Walgreens could close up to a quarter of its 8,600 stores in the US.

Additionally, the company is considering selling pharmacy company Shields Health and dumping VillageMD, which was once seen as key to growing its healthcare operations. These may be drastic moves, but by implementing them, the business could be in much better shape in the long run.

2. New CEO Tim Wentworth isn’t afraid to make big moves

It’s one thing for a company to say it is Given the selling assets and making big moves, but doing it is quite another. With its new leadership, I’m confident there won’t be any no-gos for Walgreens if it means they’ll make the company better in the long run.

This was evident when Wentworth made a significant move in January to cut the company’s dividend by almost 50%. For a company that has been raising payouts for decades, this was not an easy decision to make. But given that Wentworth is new to the job, having started last October, he’s had a fresh take on the business and has shown he can make tough decisions, which is why I think Walgreens has a shot.

3. The company generated positive cash flow in the last quarter

Walgreens isn’t doing great right now (it’s suffered a loss in three of the past four quarters), but at least it’s generating positive cash flow. This is more important than just recording an accounting profit, which includes non-cash expenses. Positive cash flow means that the company’s operations are sustainable, and if this trend continues, it will put less pressure on the business to liquidate assets for the sake of increasing its cash balance.

Over the last 12 months, Walgreens’ operating cash flow totaled $725 million. In two of the last four quarters, its cash flow was negative, but in the most recent period, which ended May 31, it accumulated $604 million in cash and even reported free cash flow of 327 millions of dollars. This is a good sign that the business may not be in a difficult position.

Should You Risk Walgreens Stock?

Walgreens stock is down 65% this year, and there’s no guarantee it’s bottomed and can’t go lower. It may even continue to decline next year. But if Wentworth can make the deal weaker and prove that Walgreens is a safe business to invest in again, the upside could be significant and could easily double its value given its strong sales this year.

It won’t be easy, and it may not even be likely, which is why this healthcare stock is primarily an investment option suitable for contrarian investors with a high risk tolerance. For other investors, the much safer approach is to wait on the sidelines for now and see how the business does in the coming quarters before investing in it. You may lose some gains if Wentworth is able to help turn things around successfully, but you can also prevent some losses if things don’t go according to plan.