What Rite Aid’s Acquisition of EnvisionRx Could Mean For The Stock

February 11, 2015 0 Comments

Just the other day, I was discussing Rite Aid’s purchase of the pharmaceutical provider EnvisionRx for $2 billion: $1.8 billion in cash, $200,000 in Rite Aid stock. Not something I was expecting the company to do, considering that majority of their earnings was going towards repaying their debt. However, considering that it didn’t use any debt to acquire this company, this can be seen as a net positive. The company is already trading at a cheaper value than its competitors Walgreens and CVS, which trade at more than 8x P/S (price-to-sales).

In my last entry, I mentioned the company’s impressive turnaround, as most analyst assumed that the company was headed towards bankruptcy, barely trading at $1 dollar a share. Now the company has increased 8 times that amount and expanding significantly. Rite Aid has a greater opportunity to expand with the new Envision acquisition, which manages over 13 million individual accounts. Similar to CVS with their Caremark division, Rite Aid will be able to gain those individual customers and expand in its individual pharmacy business. This can translate to more same store script sales in the foreseeable future.

Also, one of the things that has helped the company turn itself around was the shift towards lower-priced, high margin generic drugs (which is what Walgreen and CVS are using as well). However, the company still has problems with high-cost, brand name, complicated speciality drugs. By acquiring EnvisionsRx, the company now as the ability to negotiate pricing with large pharmaceutical companies.

I’m still long on Rite Aid, so perhaps my analyst comes off as a bit bias, but its pretty difficult for the bears not to justify this acquisition.

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