Walgreens: Opioid Lawsuit Spooks Investors and Reverses Gains, but Outcome Too Early to Tell

Key Morningstar Metrics for Walgreens Boots Alliance

• Fair Value Estimate: $20.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Walgreen Boots Alliance’s Earnings

It was reported on Friday, Jan. 17 that the US Justice Department has filed suit against Walgreens Boots Alliance WBA for allegedly exacerbating the opioid crisis. While many of the details of the lawsuit and its financial implications are unclear, that did not stop investors from damping their appetite, sending shares down over 10% at the time of writing.

The timing of the news is unfavorable, as the stock enjoyed a rare period of gains during the week of Jan. 13 and was up over 35% since reporting earnings on Jan. 8. We maintain our fair value estimate of $20 per share.

This is not the first time Walgreens has faced legal challenges regarding the opioid crisis. In late 2022, the firm settled all opioid-related claims with all 50 states for up to approximately $4.8 billion in remediation payments to be paid out over 15 years. While that settlement included Walmart WMT and CVS Health CVS, which had their own respective payments, this new lawsuit doesn’t include the two firms and solely names Walgreens as a defendant. If we take the previous settlement amount and payment period and add the annual costs to our model, we see about a 20% reduction in our fair value estimate. However, we have not changed our model, given the high uncertainty around the outcome. And even if a result similar to 2022 plays out, we believe the current share price affords a significant upside to our valuation.