Ariel Investments sees upside potential in Walgreens, despite recent tumble

Ariel Investments sees upside potential in Walgreens, despite recent tumble

Ariel Investments, an investment management firm, highlighted Walgreens Boots Alliance, Inc. (NASDAQ: WBA ) and Northern Trust Corporation (NASDAQ:NASDAQ: NTRS ) in its second-quarter 2023 investor letter for the Ariel Appreciation Fund.

The Ariel Appreciation Fund gained +5.04% in the second quarter of 2023, outperforming the Russell Midcap Value Index's +3.86% return but lagging behind the Russell Midcap Index's +4.76% return. The average annual returns for the investor class of the Ariel Appreciation Fund for the 1-, 5-, and 10-year periods ended June 30, 2023, were +15.95%, +6.14%, and +8.01%, respectively.

Walgreens Boots Alliance, a pharmacy-led health and beauty retail company based in Deerfield, Illinois, saw its stock price fall after missing earnings expectations and reducing its full year 2023 guidance and preliminary 2024 outlook. The company's shares closed at $21.99 per share on Thursday, reflecting a one-month return of -24.36% and a loss of 39.97% over the last 52 weeks. Walgreens Boots Alliance has a market capitalization of $18.996 billion.

Despite these challenges, Ariel Investments remains optimistic about Walgreens Boots Alliance's prospects, citing the company's free cash flow generation and 4.8% dividend yield as potential cushions against further downside. The firm also noted that with shares trading at a 62% discount to their estimate of private market value, they believe the risk/reward is skewed sharply to the upside.

Meanwhile, Northern Trust Corporation (NASDAQ:NTRS), a financial holding company based in Chicago, Illinois, had its stock close at $76.39 per share on Thursday. The one-month return of Northern Trust Corporation was -2.96%, and its shares lost 22.44% of their value over the last 52 weeks. The company has a market capitalization of $15.813 billion.

In the second quarter, Northern Trust Corporation's clients exhibited significant cash sorting behavior, withdrawing funds in search of higher deposit yields. This led to lower-than-anticipated wealth management fees and increased costs for short-term funding as well as deposits. Ariel Investments believes that despite this pressure, Northern Trust Corporation remains well-positioned due to its diversified product offering and high barriers to entry.

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