Is A Successful Rite-Aid Deal Now Key To Walgreens Maintaining Its Growth?

Walgreens Boots Alliance Inc WBA merger with Rite Aid Corporation RAD is seen as a key catalyst for the company to maintain double-digit growth moving forward. A deal that has been in the works for some time is now expected to close by July, according to Barclays.

Walgreens is set to report its second quarter earnings on April 5. According to Barclays analyst Eric Percher, this quarter will be notable for the following reasons:

• It's the first quarter that will be impacted by commercial agreements entered into by WBA in 2016 ($52 million headwind).
• It's the fourth consecutive quarter for which results are truly comparable to the prior year following new segmentation in 2015.

“While volumes will likely ramp over the course of the year, 2QFY17 should give us an idea of the margin sacrificed by WBA to obtain volume growth in 2017. We harbor concerns over the magnitude of concessions, but see volume growth as key to leveraging WBA’s expensive store base,” Percher said in a note Friday.

Barclays will be paying close attention to the impact of commercial agreements, year-over-year comparability, and the Rite Aid acquisition. The firm expects a slight earnings beat and reiterated an Equal-Weight rating and $79 price target on the stock.

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