Why Walgreens Boots Alliance, CVS Health and Rite Aid are down today
Actions of Alliance of Walgreens boots (NASDAQ: WBA), CVS Health (NYSE: CVS), and Rite Help (NYSE: RAD) everything tumbled on Thursday. Each of these companies’ shares were down at least 7% by early morning. As of 12:40 p.m. EDT, their shares were down 7%, 4% and 13%, respectively.
All three stocks appear to be selling in response to Walgreens’ second quarter fiscal 2020 earnings report, which was released this morning.
Here are the main numbers investors need to know:
- Sales increased 3.7% to $ 35.8 billion. This was ahead of the $ 35.3 billion predicted by analysts.
- Operating profit fell 18.7% to $ 1.2 billion. On a no-GAAP (adjusted) operating profit fell 12% to $ 1.7 billion.
- EPS fell 14% to $ 1.07. Adjusted EPS fell 7% to $ 1.52. It was ahead of the $ 1.46 expected by Wall Street.
Walgreens CEO Stefano Pessina made it clear to investors the short-term direction of the company:
Our number one priority is to continue to provide essential services, products and information at this critical time of need, demonstrating our unwavering commitment to our customers and patients, and to our employees.
He also gave some examples of how the company reacts to Coronavirus pandemic:
- Customers can get some cleaning and grocery items through the company’s driving windows.
- Free home delivery is available on prescriptions and products purchased online in the United States
- Walgreens is partnering with the US and UK governments to launch the tests.
- Temporary benefits for some employees have been extended.
Overall, the quarterly numbers were good and management is taking action that deserves to be applauded. However, marketers seem to be squarely focused on where the business is going.
Management said it is on track to meet its previously released guidance for fiscal 2020, which called for stable Adjusted EPS at plus or minus 3%. However, COVID-19 has forced management to withdraw these guidelines:
While the COVID-19 situation is ultimately temporary, given the many rapidly changing variables associated with the pandemic, at this time, WBA is unable to accurately predict future impacts. The company will continue to closely assess and manage this situation, and will provide further updates in the next earnings report when the potential positive and negative effects of the pandemic are known in more detail.
Walgreens shares are down in response to increased uncertainty, and traders are also lowering CVS Health and Rite Aid share prices.
Walgreens, CVS Health, and Rite Aid are all on the front lines of the COVID-19 pandemic. Each of them provides essential services in the communities they serve, and demand for some of their products is likely to remain high for the time being. However, given the social distancing restrictions, it’s understandable that Walgreens management decided to withdraw their guidance for the full year.
It also makes sense that Rite Aid’s stock would react so harshly to this update. The company was already struggling with sales growth before the pandemic and its balance sheet is not in great shape. As of November 30, 2019, Rite Aid only had $ 289 million in cash and over $ 3.5 billion in long-term debt, along with a number of other liabilities. There’s a good chance he’s having a lot more difficulty throughout this time than Walgreens or CVS Health.
It’s anyone’s guess where these value stocks then head. the $ 2,000 billion in stimulus will likely help many of its customers, which could help keep sales afloat during this difficult time. Again, this might not be enough to compensate for the loss of foot traffic.
Either way, I encourage investors to stay focused on the long term potential of these companies and not to focus too much on what’s going to happen in the coming quarters.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.