NEW YORK ( TheStreet) -- Rite Aid (RAD), the debt-laden drug store giant that reported a $500 million-plus annual loss is a "Buy" even if the company can't attract a buyer like Walgreen (WAG), according to a Guggenheim Partners analysis that cuts against speculation of a possible merger.
On Thursday, Guggenheim Partners analyst John Heinbockel raised his price target on the Camp Mill, Pa-based drug store giant to $2.25 a share from $1.60 on a boost in expected earnings at the company's stores. That earnings-based price target lift comes as the company's shares have surged nearly 60% in 2012 driven, by M&A rumors.
"Our optimism stems entirely from fundamentals and not from potential M&A. In our view, a strategic transaction is highly unlikely," notes Heinbockel in a March 15 research note. "This largely reflects the absence of logical buyers at acceptable prices. We find it difficult to make the case that
In November, Susquehanna Financial Group analyst Joseph Stauff wrote in a note to clients that the company could be a target of Walgreen, the largest U.S. drugstore chain. With Rite Aid, Walgreen would further bolster its near 30% market share, distancing it from CVS Caremark (CVS), the industry second.Presently, Walgreen has 7,811 stores that have helped the company draw in $73 billion in sales and a profit of $2.7 billion in 2011. In contrast, Rite Aid hasn't been able to turn a profit on its near 5,000 stores and $25 billion in revenue in 2011. Rite Aid is expected to lose 12 cents a share in its first quarter earnings due on Apr. 12, while Walgreen is expected to earn 77 cents a share in profit, according to consensus estimates compiled by Zacks.
Earlier in March, Credit Suisse analyst Edward Kelly said that a Rite Aid acquisition would help Walgreen push against drugstore competition by pharmacy benefits managers like CVS Caremark and Express Scripts (ESRX), which is currently trying to secure a $29 billion 2011 acquisition of Medco Health Solutions (MHS). That deal has been slowed by regulators on antitrust concerns. After a $1.1 billion deal for prominent New York drugstore chain Duane Reade in 2010, Kelly noted that Walgreen wouldn't face big concentration threats on a Rite Aid buy. A deal could drive up to $650 million in cost savings, noted Kelly. "
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