Evercore ISI Discusses Walgreens Boosts Alliance (WBA) M&A and JVs

Speculation has been hot in the PBM/Pharmacy space today following Walgreens Boosts Alliance (NASDAQ: WBA) earnings conference call. Evercore ISI analyst Ross Muken offer his thoughts on the situation in a note to clients this afternoon.

Read-through to ESRX (Nasdaq: ESRX): The market clearly interpreted today's commentary on the CC as an open invitation for talks with key peer ESRX. While we believe some sort of relationship has a ton of merit (see success of CVS), we struggle to see a merger of equals as feasible NT and argue a JV is likely more palatable for both sides. That being said JVs are difficult to structure and neither side has a love for the others business model and there is clearly a sordid history (albeit under different leaders at WAG). Additionally, we remind investors that the integration and successful selling of CMX / Maintenance Choice did take some time (this would likely be easier given paved road) and it is likely that we would see some disruption and that the merits of the combination would also take some time to manifest.

Read-through to RAD (NYSE: RAD): We see nothing from today's release that changes our view of the RAD fundamental story, nor its potential strategic value. We see RAD as a financially appealing transaction for WBA, albeit acknowledge the strategic merits are more challenging to argue (although 2 players in pharmacy likely better than 3 - particularly given WMT's increased focus).

Read-through to UNH (NYSE: UNH): We see UNH as a dark horse JV partner for WBA, with the recent acquisition of CTRX making the relationship possibly more compelling. It is likely easier to structure than ESRX given the lack of mail dependence and the two sides certainly don't have the same history of conflict.

The firm maintained a Hold rating on WBA but boosted its price target from $80 to $94. The firm lowered FY15 EPS by a nickel from $3.80 to $3.75. FY16 EPS estimate remains unchanged at $4.50. However, they also raised FY17 EPS estimate from $5.10 to $5.65.

For an analyst ratings summary and ratings history on Walgreens Boosts Alliance click here. For more ratings news on Walgreens Boosts Alliance click here.

Shares of Walgreens Boosts Alliance closed at $87.68 yesterday.

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