WBA: Bullish Options Setup for Walgreens Boots Alliance

Walgreens Boots Alliance (WBA) operates as an integrated healthcare, pharmacy, and retail company. Its core business revolves around retail pharmacy through brands like 'Walgreens', 'Boots', 'Duane Reade', and 'Benavides', offering prescription drugs and a wide range of retail products including health and wellness, beauty, and personal care items. WBA also has product brands like 'No7' and 'Soap & Glory'. The company's target markets include retail consumers across the U.S., Europe, and Latin America, as well as healthcare providers and payors through its U.S. Healthcare segment, which includes 'VillageMD', 'Shields', and 'CareCentrix'. WBA differentiates itself through its omni-channel approach, loyalty programs like 'myWalgreens' and 'Boots Advantage Card', and expansion into healthcare services, focusing on value-based care and integrated pharmacy and medical care.

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WBA exhibits a moderately bullish technical outlook based on recent price action and indicator trends. The price has steadily risen over the past 90 days, climbing from approximately $10.99 in late April to $11.98 as of August 28th. WBA is trading above its 21-day EMA of 11.91 and its 50-day SMA of 11.67. The MACD confirms the bullish momentum, with the MACD line (0.105) above the signal line (0.124), and the MACDh at -0.018, suggesting a potential convergence. The RSI, while at 58.05 is trending upwards, indicating increasing buying pressure. Stochastic %K is at 29.27, while Stochastic %D is at 37.10 signaling that the stock is not yet overbought. The ADX at 47.73 suggests a strengthening trend. The recent price action shows a slight dip, but overall, the trend remains positive. The ROC_20 of 2.92 further reinforces the bullish sentiment. Given these factors, WBA is likely to continue its upward trajectory over the next 1-3 months, although some consolidation or minor pullbacks are possible.

Walgreens Boots Alliance's MD&A presents a challenging near-term outlook. For the three months ended May 31, 2025, `Net Sales` increased by 7.2% to $38,986 million, but `Gross Profit` only increased by 0.7%, resulting in a decline in `Gross Profit` margin from 17.8% to 16.7%. For the nine months ended May 31, 2025, `Net cash provided by operating activities` was $245 million, a significant improvement from `Net cash used for operating activities` of -$314 million in the prior year, however, this is still a relatively weak number. The company is undergoing a strategic review, focusing on core retail and specialty pharmacy, which includes a 'Footprint Optimization Program' involving the closure of 900 to 1,000 underperforming stores. Management anticipates a 'challenging' retail environment. The company is also working to 'stabilize pharmacy margins' and monetize non-core assets, including the sale of its remaining investment in BrightSpring for $610 million year-to-date. WBA is also undergoing a merger, expected to close in the third or fourth quarter of calendar year 2025. The dividend has been suspended to 'strengthen the Company’s balance sheet by reducing debt over time and improving free cash flow'. Credit ratings have been downgraded, which 'has limited impact to the cost of interest on existing debt, but has minimally increased borrowing margins under certain credit facilities that are tied to ratings grids or similar terms'.

The Walgreens Boots Alliance earnings call reveals a company in transition, facing headwinds but taking decisive action. CEO Tim Wentworth emphasized a 'rebasing year' in fiscal 2025, with a focus on stabilizing core economics and strengthening the balance sheet. The company is undertaking an 'expanded footprint optimization program,' closing approximately 1,200 underperforming stores over the next three years to realign the store base. While comparable sales grew 8.3%, adjusted EPS declined 41% year-over-year, reflecting pressure on US Retail Pharmacy. CFO Manmohan Mahajan anticipates continued reimbursement rate pressure and price-sensitive consumer behavior, leading to an adjusted EPS guidance of $1.40 to $1.80. Despite these challenges, management expressed confidence in reframing the relationship with PBMs, with Wentworth stating, 'we're willing to walk away from a line of business if it doesn't make sense.' The company is also focused on monetizing non-core assets, particularly VillageMD, to reduce net debt. While the long-term outlook remains uncertain, the near-term focus on cost discipline and strategic realignment suggests a mildly bearish sentiment.

WBA's financial performance presents a concerning trajectory. Revenue has fluctuated, starting at $36.7B in Q1 2024 and reaching $39.0B in Q3 2025, indicating some top-line growth, but this has not translated into improved profitability. The gross profit ratio has remained relatively stable, hovering around 17-19%, but net income has been significantly negative in several quarters, with a net loss of $175M in the most recent quarter. Operating cash flow has been volatile, with a positive $584M in Q3 2025, but negative in prior periods, suggesting inconsistent cash generation. The company's solvency is also a concern, as total debt has decreased from $33.7B in Q1 2024 to $29.0B in Q3 2025. The substantial fluctuations in net income and inconsistent cash flow, coupled with the high debt load, paint a bearish picture for WBA's near-term financial health.

The company demonstrates a moderately bullish profile, characterized by solid revenue growth and improving profitability. Revenue has consistently increased, indicating strong market demand. The gross margin exhibits stability, suggesting efficient cost management. Return on Equity (ROE) has shown positive movement, signaling enhanced profitability and efficient use of shareholder equity. The Price-to-Earnings (P/E) ratio, while elevated, might be justifiable given the growth trajectory and positive ROE trend. The Debt-to-Equity ratio shows a slight increase, which warrants monitoring, but is counterbalanced by a healthy Current Ratio, implying sufficient liquidity to meet short-term obligations. Overall, the company presents a favorable picture with growth and profitability, though the leverage should be watched closely. The combination of growth and profitability suggests potential for continued positive performance over the next 12 months.