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Rite Aid (RAD) Gains as Cowen Sees Amazon Takeover as One Way to Enter U.S. Pharmacy Market

November 21, 2017 11:07 AM EST
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Rite Aid (NYSE: RAD) is higher Tuesday (+3.5%) as Amazon (NASDAQ: AMZN) takeover rumors resurface following a research reports from Cowen discussing Amazon's U.S. pharmacy opportunity. A takeover of Rite Aid was identified as one of several ways Amazon could potentially enter the US Pharmacy market, the firm concluded.

"If Amazon were to launch Pharmacy in Whole Foods, on Prime and Prime Now, an acquisition of Rite Aid would accelerate market share gains and other positive benefits," analysts John Blackledge and Charles Rhyee commented.

By acquiring Rite Aid, Amazon would receive state licenses in at least 19 states, located predominately in the Northeast and West Coast, which represent some of the more attractive markets in the US, given their high population densities, the analyst notes. Notably, the acquisition of Rite Aid would likely provide Amazon with a pharmacy license in California, which is known to be a difficult state to secure a license.

Under this scenario, they estimate Amazon US Retail and Mail Pharmacy business could generate ~$20BN in ’19, ~10% US Retail & Mail pharmacy market share (ex-Specialty), rising to $28BN by ’23 or ~12% market share.

They said the main downside to acquiring Rite is that Amazon would inherit over 2,500 underperforming stores relative to its larger drug retail peers, which would need to be addressed.



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