Walgreens Boots Alliance Inc (NASDAQ: WBA) and Rite Aid Corporation (NYSE: RAD) shareholders have been in limbo in recent months, as they wait to see whether the
proposed merger of the two drugstore chains will be approved by regulators. Earlier this month, FTC commissioner Terrell McSweeny
said the FTC sees a “troubling decrease in competition” that could result from the merger.
According to Jefferies analyst Brian Tanquilut, Walgreens investors shouldn’t be sweating the FTC decision. Jefferies has
upgraded the stock from Hold to Buy with or without a Rite Aid deal.
“While we recognize the risk from the RAD deal, our view is that downside from current levels is fairly modest at ~7 percent
given our expectation that mgmt. would backstop its shares with a $2+ billion buyback should the deal fall through,” Tanquilut
explained.
Related Link: What's
Going On With Some Of These Major M&A Deals?
Jefferies notes that the market doesn’t seem to fully appreciate Walgreen’s 7 percent-plus FCF yield. In addition, management
has a track record of putting that cash to good use.
Tanquilut also praised the company’s Prime Therapeutics and TRICARE partnerships. He estimates that the two deals could add
$0.14 in incremental EPS for Walgreens next year.
Finally, Tanquilut points out that Walgreens has reduced its G&A rate by 1 percent in the last two quarters and seems to be
on track for its goal of $1.5 billion in long-term spending cuts.
Jefferies has also raised its price target for Walgreens from $87 to $95.
At last check, Walgreens was down 0.24 percent at $78.12, while Rite Aid was down 0.78 percent at $7.01.
Full ratings
data available on Benzinga Pro.
Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win
a $20 Amazon gift card!
Latest Ratings for WBA
Date |
Firm |
Action |
From |
To |
Oct 2016 |
Jefferies |
Upgrades |
Hold |
Buy |
Oct 2016 |
UBS |
Initiates Coverage on |
|
Buy |
Sep 2016 |
Credit Suisse |
Maintains |
|
Outperform |
View More Analyst Ratings for
WBA
View the Latest Analyst Ratings
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.