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The worst-performing stock in the Dow Jones Industrial Average this year just got some more bad news. Wells Fargo Securities downgraded Walgreens Boots Alliance from Overweight to Equalweight in a note to clients Wednesday.
Walgreens stock (ticker: WBA) was down 0.7% in morning trading. So far this year, the stock has lost 15%, compared with the S&P 500’s 25% gain.
Wells Fargo Securities Peter Costa stressed that the change was due to a shift in how the firm considers its ratings, not a change in how he sees the fundamentals of the business. Previously, Wells Fargo’s picks were relative to the stock market as a whole, but under a new structure, the ratings are relative to the group of stocks an analyst covers.
In this case, that group is hospitals, managed care and pharmacies.
Walgreens has had a hard year, notching the worst performance of any stock in the Dow Jones Industrial Average, which has risen 19% in 2019. That in and of itself might be a strong case that the stock will snap back.
Last year’s worst-performing Dow stock was General Electric (GE), which fell just over 55%. In 2019, it has gained 53%.
And the best-performing stock in the Dow in 2018, Merck (MRK), has underperformed the index so far this year.
The slide in Walgreens’ stock has reportedly enticed KKR (KKR) to look at a buyout of the company. But completing a deal would be hard, as Barron’s has argued, given the struggling fundamentals of Walgreens’ business. In addition, the valuation needed to win shareholder approval of such a deal might require KKR to put up a prohibitively large chunk of equity.
It’s always tempting to imagine a private-equity knight rescuing shareholders in a struggling public company, but in Walgreen’s case, that may remain a fairy tale.
Write to Ben Walsh at ben.walsh@barrons.com