A Positive View On Walgreens Doesn't Depend On Rite Aid Deal

Wells Fargo says its Outperform rating on Walgreens Boots Alliance Inc (NASDAQ: WBA) isn't contingent on the closing of Rite Aid Corporation (NYSE: RAD) deal even as it believes the accretive acquisition would propel Walgreens to the largest market share again.

“We believe Walgreens is positioned to benefit from favorable demographics with an aging population and increasing use of pharmaceuticals,” analyst Peter Costa wrote in a note.

Costa says Walgreens’s acquisition of Alliance Boots, and recent strategic Pharmacy Benefit Manager partnerships bodes well for market share gains and long­-term EPS growth.

“If the RAD deal were to fall through, we expect the capital freed up could provide other capital deployment opportunities including strategic investments and potential acquisitions,” Costa added.

The comments came after the companies amended and extended the merger termination date to July 31 from January 27.

The amendment also cuts the purchase price paid to Rite Aid to $6.50-­7.00 per share in cash from $9.00 per share in the initial agreement.

The amendment also implies the recently announced plans to sell 865 Rite Aid stores to Fred's, Inc. (NASDAQ: FRED) were not enough to address potential antitrust concerns.

Walgreens expected Rite Aid acquisition to be $0.05 ­ $0.12 accretive to adjusted FY17 EPS.

At last check, shares of Walgreens were down 0.28 percent to $81.27, while shares of Rite Aid plunged about 17 percent to $5.78 after setting a new 52-week low of $5.70.

Image: Mike Mozart, Flickr