By Manas Mishra and Amruta Khandekar
(Reuters) -Shares of Walgreens Boots Alliance fell 3% on Wednesday after the U.S. pharmacy chain operator lost its spot on the Dow Jones Industrial Average to Amazon, marking an end to a short stint for the blue-chip index’s worst performer of 2023.
The replacement comes less than two months after Walgreens nearly halved its dividend payout to conserve cash as it sought to win back market share from rivals and expand beyond its pharmacies.
The move “is not the first time by a long shot that the index has moved away from a company that has lost its luster, to a company with perceived greater prospects by investors”, said Rick Meckler, partner at Cherry Lane Investments, in New Jersey.
Adding Amazon gives the Dow a higher expected return and adds volatility as the stock is likely to have greater price movement than Walgreens, he said.
The switch was prompted by Walmart’s decision to split its shares, which would reduce the retailer’s weightage on the index.
The Dow is weighted based on the share prices of its components, not on each company’s overall market value.
Walgreens joined the Dow in 2018, replacing industrial conglomerate General Electric. Since then, the stock has lost about 65% of its value.
Walgreens has appointed new top executives, shuttered unprofitable stores and unveiled the dividend cut in January as it deals with low consumer spending, a drop in COVID-19 product sales and a slow ramp-up of its nascent healthcare unit.
Shares of Walgreens trade at a forward price-to-earnings ratio of 6.54, compared with 9 for larger rival CVS Health. They fell 2.9% to $21.71 in premarket trading.
S&P Dow Jones indices said on Tuesday that adding Amazon would increase consumer retail exposure, reflecting “the evolving nature of the American economy”. The change is effective next week.
Amazon’s shares rose marginally to $168.14 before the bell.
(Reporting by Manas Mishra in Bengaluru; Editing by Shilpi Majumdar)
