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Walgreens Announces Groundbreaking Deal with Alliance Boots

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Along with pharmacy company Walgreen's (NYSE: WAG) Tuesday morning announcement of its largest quarterly dividend in history, the drug store chain continued to share good news with investors and analysts. Walgreens and privately held pharmacy health and beauty group Alliance Boots have entered into a strategic partnership that will eventually result in the world's first global pharmacy store.

Boasting a successful fiscal third quarter this morning, Walgreens' operating cash flow reached a record $1.9 billion. The massive accomplishments the company has been earning as of late have opened up the opportunity to spend $6.7 billion in cash and stock to take on just under 50 percent of equity interest in new partner, Alliance Boots.

The iconic brands will come together to evolve and leverage the combination of their already fruitful businesses, as Walgreens and Alliance Boots are the largest pharmaceutical retailers of their kind in the U.S. and Europe, respectively.

Under the contract, Walgreens and Alliance Boots will have approximately 11,000 stores in 12 countries across the world, with over 370 distribution centers that service more than 170,000 healthcare businesses. Eventually, Walgreens will be given the option to purchase the remaining 55% of Alliance Boots shares following the completion of the initial transaction and a few years' time.

As the ink dries on the binding agreement, Walgreens continues to dish out the dough. The company was able to increase dividend by 22.2%, which in turn raised quarterly payment to 27.5 cents per share.

As investors in the booming drug-store retailer rejoice, other big-name chains are still capitalizing on Walgreen's dispute with Express Scripts. CVS Caremark (NYSE: CVS) and Rite Aid (NYSE: RAD) enjoyed healthy entries into the summer months, with Rite Aid bringing in higher same store sales throughout the month of May.

Today, research firms commented on Rite Aid's better-than-expected first quarter and what's to come for the third largest drug-store chain in the country.

"In our view, the fundamental story is as intact today at $1.20 as it was three months ago at $2.00—RAD's EBITDA growth is in the midst of a 12-18 month Wellness+, generic wave, and WAG windfall-driven acceleration, which should enable the shares to trade closer to their historical EBITDA multiple of 8.3x," Guggenheim said this morning.

"Our 1Q EBITDA forecast has two basic components: 1) "core" growth of 5%; and 2) a WAG windfall of $10M. Keep in mind that "core" growth was 12% in 4Q 2011 against a similar comparison and the WAG windfall was $8M."

As Rite Aid continues to work on its marketing strategy and entice customers to utilize the Wellness+ card, Walgreens will carry on building up its colossal brand as well with its new acquisition.

Drug stores are becoming well worth the investment these days, with increased quarterly earnings and groundbreaking agreements at the forefront of the prosperous industry.

WAG closed yesterday at $31.96, down ~3% year-to-date, while RAD closed at $1.22, also down ~3% year-to-date.

Latest Ratings for WAG

Dec 2014JP MorganMaintainsOverweight
Dec 2014BarclaysMaintainsEqual-Weight
Dec 2014SunTrust Robinson HumphreyDowngradesBuyNeutral

View More Analyst Ratings for WAG
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Posted-In: GuggenheimNews Dividends Contracts Retail Sales M&A Analyst Ratings Trading Ideas Best of Benzinga


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