Walgreens Boots Alliance: A Contrarian Play on Turnaround and Buyout Potential

The healthcare retail sector is in flux, yet Walgreens Boots Alliance (WBA) presents a compelling contrarian opportunity. With a stock price hovering near $11.80—well below the $11.45 cash offer from Sycamore Partners—the company sits at a critical inflection point. Let’s dissect the near-term catalysts, strategic moves, and valuation gap that could ignite a sharp rebound.

Earnings Catalyst: A Pivot to Profitability?

Walgreens is set to report third-quarter fiscal 2025 results on . June 26, 2025. Analysts project adjusted EPS of $0.33, a steep drop from last year’s $0.63. However, this lowered bar offers a chance for upside surprise. Management has reaffirmed fiscal 2025 guidance of $1.40–$1.80 EPS, despite a 4%–5% decline in U.S. retail comparable sales.

The stock’s history of volatility around earnings—like a 22% drop in June 2024 and a 27% jump in January 2025—hints at the market’s sensitivity to surprises. A beat here could trigger a short-covering rally, especially if management provides clarity on margin improvements and progress in its Footprint Optimization Program, which aims to close nearly 450 stores by year-end.

Opioid Settlement: A Liability Turned Opportunity?

In April 2025, Walgreens agreed to a $350 million opioid settlement, with $50 million contingent on a sale before 2032. While this resolved a major overhang, the $969 million in Q2 legal payments underscored the financial toll. Yet, the settlement’s terms are strategically advantageous:

• The company denies liability, avoiding admissions of wrongdoing.
• Compliance measures (e.g., DEA and HHS agreements) are now codified, reducing future litigation risks.
• The $50 million trigger only activates if sold before 2032—a scenario Sycamore’s acquisition could fulfill, but not until late 2025 at the earliest.

This resolution removes a critical uncertainty, freeing capital and focus for operational improvements.

Micro-Fulfillment: The Efficiency Play

Walgreens’ rollout of micro-fulfillment centers (MFCs) is a quiet game-changer. The newly opened Brooklyn Park, Minnesota MFC—handling 13 million prescriptions annually—adds to a network of 12 centers supporting 5,000 stores. These hubs process 40% of prescriptions at supported stores, enabling pharmacists to focus on high-margin services like vaccines and medication adherence.

The results are measurable: a 24% year-over-year rise in shipped prescriptions, and pharmacists’ time spent on administrative tasks dropped by 15%. With 16 million prescriptions filled monthly, this tech-driven model could stabilize margins and defend against Amazon’s encroachment in pharmacy services.

The Sycamore Buyout: A Floor Beneath the Stock

The $11.45-per-share cash offer from Sycamore Partners represents an 8% premium to current prices. Including potential DAP Rights (up to $3.00 per share from VillageMD sales), the total upside jumps to $14.45—a 22% gain from current levels.

Critics cite risks: the 83% leveraged deal could strain operations, and Sycamore’s lack of healthcare expertise raises execution concerns. Yet, the $11.45 floor is a near-term anchor. Even if the deal falters, the stock’s undervalued status (trading at 4.8x 2025 EPS estimates) leaves room for a rebound.

Risk-Reward for Contrarians: Why Act Now?

1. Valuation Gap: WBA trades at a historic discount to peers (e.g., CVS Health’s 10.2x forward P/E). The buyout alone justifies the current price as a minimum.
2. Catalyst Density: Earnings (June), MFC expansion updates, and regulatory progress on the Sycamore deal all loom within weeks.
3. Margin Turnaround: Micro-fulfillment and store closures aim to reduce costs. If U.S. Healthcare (up 12% in sales) continues growing, EPS could exceed guidance.

Conclusion: A High-Conviction Contrarian Bet

Walgreens is a classic value trap turned opportunity. The Sycamore deal provides a safety net, while operational moves like MFCs and store closures signal a turnaround. Near-term catalysts—earnings, settlement closure, and buyout progress—could catalyze a 20–30% rally. For contrarians willing to navigate short-term volatility, WBA offers asymmetric upside: limited downside risk below $11.45, with a clear path to $14+ if the buyout closes or earnings surprise.

Action Item: Buy WBA shares now at $11.80, with a stop below $10.50. The risk-reward favors a 2025 rebound driven by these catalysts.