It’s been a very difficult year for Walgreens Boots Alliance (NASDAQ: WBA), which has seen its stock lose two-thirds of its value this year. The company has fallen victim to consistent drops in drug reimbursement payments from insurance providers over the years, a poor acquisition, and a cost-conscious consumer.

Now a new threat to the company has emerged: Amazon (NASDAQ: AMZN).

The Amazon threat

The pharmacy business has long been considered e-commerce-proof. While there have been mail-order and e-commerce pharmacies for quite some time, catering to people with predictable prescription refills, many patients need their medicine immediately, not in a few days.

However, Amazon is now looking to turn the industry on its head by rapidly expanding its same-day pharmacy services. Amazon began its e-commerce pharmacy service in 2020 and started testing same-day delivery in a few select cities last October. It expanded to the greater Los Angeles area and New York City in March and now has ambitious plans for 2025.

The e-commerce giant now plans to offer same-day pharmacy services in 20 more cities next year, including Boston, Dallas, Minneapolis, Philadelphia, and San Diego, among others. The move is expected to help the company provide same-day pharmacy delivery to nearly half the U.S. by the end of next year.

Amazon said that for orders placed by 4 p.m., customers will be able to get their medications delivered to them by 10 p.m. the same day. In addition, delivery is free for Prime members. Amazon has even been testing delivering medicine by drones in College Station, Texas, which is home to Texas A&M University.

Amazon’s aggressive push into same-day pharmacy delivery comes at a bad time for Walgreens, which recently announced that it could close a quarter of its stores. The move should ultimately be addition by subtraction for Walgreens. As it closes unprofitable stores, the ones that remain open should see a boost as many customers move their scripts to new Walgreens locations. However, with nearby pharmacies closing, the lure of free same-day pharmacy delivery from Amazon could see customers instead opting for the convenience of not having to go to a pharmacy when they are sick.

For its part, Amazon said it was looking to capitalize on the growing number of “pharmacy deserts” that were being created by store closures.

What to do with Walgreens stock?

While Amazon’s same-day pharmacy delivery service is a new emerging threat, the biggest issue Walgreens continues to face is drug reimbursement pressures. Pharmacy benefit managers (PBMs) have created an untenable situation for pharmacies to the point where, in some instances, they lose money by filling certain prescriptions, including popular GLP-1 weight-loss drugs.

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For its part, Walgreens is trying to convince PBMs to switch to a new cost-plus model, where pharmacies would be paid for the part they play in helping reduce inflationary pressures on drug prices and the services they provide. However, the company will need to convince the big three PBMs that this model will also benefit them as well.

For its part, the U.S. government has taken notice of what is going on in the PBM market. The Federal Trade Commission (FTC) recently sued the three big PBMs over their practices, which it says have inflated the cost of insulin prices. A verdict in the government’s favor could help the pharmacy industry by leading to improved transparency with PBMs and eliminating the practice of excluding certain drugs from PBM formularies.

At this point, Walgreens stock is trading at a very inexpensive valuation, with a forward price-to-earnings (P/E) of just over 4.5 times earnings based on this fiscal year’s analyst estimates and a similar enterprise value-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple. The latter metric takes into consideration its debt and removes non-cash items.

While the company continues to deal with reimbursement pressure and now has to deal with a new threat from Amazon offering same-day pharmacy services, I think the stock has the potential to rebound. The closing of unprofitable stores should still be a positive, as would disposing of its VillageMD investment, which has also been a drag on the company’s results.

Meanwhile, a favorable ruling by the government against PBMs has the potential to be a catalyst for the stock if they are forced to change their ways. As such, I’d view Walgreens stock as a potential speculative buy, despite the new Amazon threat adding to its list of risks.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

Walgreens: A New Risk Just Emerged for the Stock was originally published by The Motley Fool