Pharmacy on sale

Pharmacy giant Walgreens Boots Alliance (Nasdaq: WBA) is on sale. Even after its better-than-expected fiscal fourth-quarter operating results, Walgreens stock was 32 percent below its 52-week high as of mid-november, and its dividend yield was recently over 4.3 percent.

The issue for Walgreens is that the pharmacy chain operating model is built on low margins and high volume. That volume dried up big-time when the pandemic hit, crushing front-end retail sales and hurting clinic revenue. On an adjusted basis, the coronavirus reduced earnings per share by $1.06 in fiscal 2020.

However, Walgreens Boots Alliance is undergoing a transformation that’s already beginning to pay off. The company is on track to recognize $2 billion in annual cost savings by fiscal 2022, while sparing no expense boosting its omnichannel presence. In the fiscal fourth quarter, online sales at Boots.com and Walgreens.com rose by 155 percent and 39 percent, respectively, from the prior-year period. The company has also increased the number of items that can be ordered online and picked up via drive-thru.

Perhaps the most exciting development is Walgreens’ partnership with Villagemd to develop up to 700 on-site, full-service health care clinics that’ll pair with Walgreens’ pharmacies for an integrated medical experience. The strategy is to reach out to patients with chronic conditions, making Walgreens a one-stop shop for their basic medical needs.

Long-term investors should give Walgreens Boots Alliance a closer look.