Why Walgreens Stock's Latest Rally Could Backfire

Walgreens Boots Alliance Inc (WBA) stock has been on a rollercoaster ride in recent months, with a significant rally following reports of a potential buyout by private equity firm Sycamore Partners. However, investors should be cautious about the sustainability of this rally, as historical data and market dynamics suggest potential pitfalls.

Walgreens' stock has approached its 126-day moving average six times in the past three years, with an 83% chance of the stock being lower one month after these instances. On average, the stock has lost 6.3% during these periods. If WBA's current price of $9.81 were to drop to its record low of $8.08, it would represent a decline of 17.7%. This historical pattern, coupled with the stock's high 50-day call/put volume ratio (3.32), indicating long calls are more popular than usual, and its consistent outperformance of volatility expectations (SVS score of 95 out of 100), suggests that the rally may not be sustainable.

Options market dynamics play a crucial role in predicting Walgreens' stock performance. The 50-day call/put volume ratio for WBA stands at 3.32, ranking higher than 97% of annual readings, indicating long calls are more popular than usual. This suggests optimism in the options market, which could contribute to the recent rally. However, an unwinding of this optimism could add to Walgreens' stock woes, potentially leading to a reversal in its recent gains.



Analysts' price targets and earnings estimates significantly influence investor sentiment and stock performance. Walgreens' stock has a 50-day call/put volume ratio of 3.32, indicating long calls are more popular than usual. This suggests that investors are bullish on the stock, likely driven by positive analyst sentiment. However, the stock's recent rally may be overoptimistic, as it has run into its 126-day moving average, historically bearish for the stock.

Key factors driving analysts' bullish or bearish outlooks on Walgreens include cost-cutting measures, such as the planned closure of 1,200 stores, which are expected to boost adjusted EPS and free cash flow. Additionally, the company's focus on stabilizing its retail pharmacy and improving cash flow is seen as a positive step. However, bearish sentiments stem from concerns about the company's debt levels and lack of strategic suitors for a potential sale. The stock's recent rally following buyout talks may be unsustainable, as analysts remain skeptical about the deal's feasibility and the company's ability to overcome its challenges.

In conclusion, while Walgreens' stock has experienced a significant rally following reports of a potential buyout, historical data and market dynamics suggest caution. The stock's historical performance when approaching its 126-day moving average, the high 50-day call/put volume ratio, and analysts' concerns about the company's debt levels and lack of strategic suitors all point to potential pitfalls for investors. As such, investors should approach the recent rally with a critical eye and consider the broader context when evaluating the stock's prospects.