Walgreens Volatility Is 'Noise'

Jefferies’ Brian Tanquilut maintains a bullish stance on Walgreens Boots Alliance Inc (NASDAQ: WBA), stating that the stock volatility over the past week, driven by speculations regarding FTC concerns with the pending Rite Aid Corporation (NYSE: RAD) deal, is just near-term “noise.”

Tanquilut maintains a Buy rating on Walgreens Boots Alliance, with a price target of $95.

The Deal

“While completion of the RAD deal would be a positive for the stock and WBA's LT growth, we believe the NT thesis on the stock still rests on volume acceleration, G&A cost controls, and FCF uptick,” the analyst mentioned.

“Last Friday, Bloomberg News noted that the FTC is concerned about WBA's RAD acquisition despite the proposed divestiture of 865 stores, which drove volatility in WBA shares,” the analyst explained.

Although it is difficult to determine the current stand taken by the FTC, speculations have been rising, given that the deadline for the deal is Friday.

“Our view is that absent a final FTC blockage, WBA and RAD would be open to extending the merger deadline as both parties remain committed to the deal,” Tanquilut stated.

If Deal Falls Through

If the deal is blocked, Walgreens is likely to mitigate the negative headline and lost accretion with a large share buyback worth over $2 billion.

“Our math suggests that resuming WBA's existing buyback ($2.3 billion remaining authorization) could add $0.11 to CY17 EPS and make up for the RAD EPS accretion ($0.05–$0.12) that mgmt. baked into FY17 guidance,” the analyst noted.

Image Credit: By Michael Rivera (Own work) [CC BY-SA 4.0], via Wikimedia Commons

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