Goldman Reiterates Attractive Coverage of Drugstore Chains

On Wednesday, Goldman Sachs analyst Robert Jones released a note reiterating his Attractive coverage view on the drug retail landscape.

The space should be driven by “compelling out year earnings stories, improving comps helped by ACA (1-2% sales/earnings tailwind), and company-specific growth drivers,” said Jones.

The analyst believes consolidation of generic purchasing should “combat margin pressure from lower reimbursement rates and competition at the front-end.”

In the note, Jones upgraded shares of Rite Aid (NYSE: RAD) from Neutral to Buy.

The analyst also has a Buy rating on Walgreens (NYSE: WAG) and raised his price target from $79 to $67 to “better reflect the earnings growth opportunity by the WAG/Boots combination.”

Jones has a Neutral rating on CVS (NYSE: CVS) and maintained his $71 price target and sees “the lowest relative upside from its generic purchasing JV with CAH beyond the $100M annual payment ($0.02/share for half of 2014).”

While shares of Walgreens and CVS are relatively flat, Rite Aid has jumped 5.6 percent on the back of the Goldman upgrade.