Walgreens Boots Alliance: CEO Steps Down as COVID-19 Hurdles and Slow Healthcare Growth Tumbled Stock

No-moat Walgreens Boots Alliance WBA announced Sept. 1. 2023, that Rosalind Brewer has stepped down as chief executive. This move, described by the company as a “mutually agreed” leadership transition, comes as sudden and unexpected. Brewer joined the company in March 2021, making her tenure at Walgreens less than three years, and the stock tumbled roughly 25% since she took on the role. However, we don’t necessarily view the stock’s underperformance as Brewer’s fault. Rather, Walgreens had several hurdles that it has faced since Brewer’s tenure at the company, started including a number of COVID-19 waves, reduced pharmacy hours due to worker shortage and shrinkage in its retail pharmacy locations. The company has named Ginger Graham, a longtime board member, as the interim CEO.

Since joining the company, Brewer was vocal about wanting to prioritize Walgreen’s U.S. healthcare and noted that it was a key catalyst for future growth. We have seen Walgreens make strategic investments in the area to better position itself in this new industry. Under Brewer, the company purchased Shields Health Solutions (specialty pharmacy care) for $2.3 billion, made a $5.2 billion investment into VillageMD (primary care services provider), and invested $3.5 billion to support the acquisition of Summit Health, the parent company of an urgent care clinic chain. While we appreciate Walgreen’s move into the healthcare space, we have been slightly let down by the slow pace at which the company has grown this business. And we suspect that the company’s board is similarly disappointed with the tepid ramp-up of the segment toward profitability. We believe the new executive has to continue growing Walgreen’s healthcare business while also managing its retail pharmacy.

On another note, Walgreens announced that it expects its full-year earnings to be near or at the low end of its range. We expect to slightly shed our fair value estimate to reflect this.