Investors are cheering a recent report indicating that Walgreens Boots Alliance Inc. (NASDAQ: WBA), a New York-based private equity firm, is considering selling themselves.
Analysts at TD Cowen, however, are unsure about the logic of such a deal.
The investment firm asked how a PE company would help Walgreens in its ongoing turnaround plan.
“A private equity company would have to believe that it could turn around the US Retail Segment at least as well or better than the management’s current plans” – we are unsure that Sycamore can do that, Sycamore told its clients in a client note on Wednesday.
Walgreens’ stock rose by close to 20% in response to the news.
Walgreens may separate Alliance Boots UK
Walgreens has already begun talks with Sycamore about a possible takeover. The Wall Street Journal reported on Tuesday that the deal could be finalised as early as 2025.
For years, the chain of retail pharmacies that is in trouble has struggled with store closures as well as a decline in stock prices due to declining sales.
A potential deal between Walgreens, Sycamore Partners and Alliance Boots UK could separate the business that the multinational paid over $15 billion to acquire in 2015.
TD analysts called it a “curious decision” in their research report since the Alliance Boots UK generates solid cash flow. Walgreens’s turnaround plan includes cost-cutting to improve cashflows.
Walgreens’ stock was down by more than 60% on Wednesday, despite the rally that followed the news.
In September, Crispus Nyaga, our market analyst, said that WBA was oversold. A positive news could send the shares of WBA soaring.
Sycamore could value Walgreens at $12
TD Cowen, while not certain of the reasons that Walgreens and Sycamore Partners engaged in discussions, is convinced that a purchase is still possible.
The investment firm noted that Sycamore could actually value each Walgreens Boots Alliance share at $12 if the takeover proceeds.
Walgreens, despite its struggles, surpassed Street estimates for revenue and profit in its most recent reported quarter.
TD Cowen’s stock rating of “buy” may be due in part to this.
The $14 price target implies another 38% gain from here.
Walgreens shares also pay a dividend yield of 9,60%, which makes them even more exciting.
The last time Walgreens Boots Alliance attempted to go private, it was before the pandemic of 2019.
The retail pharmacy chain was valued at $55 billion at the time.
Comparatively, its market capitalization at the time of writing is just over $9 billion.
This post Walgreens Stock may be Overreacting to Sycamore News: Here’s Why may be modified as new updates unfold
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