The Walgreens Rite Aid merger will conclude here in the next couple months. So it won’t be long until you are cashing out on RAD stock profits. If you are a BNL Member, those profits upwards of 25%. Those who were scared away by losses in October, your gains are far less.
Regardless, Walgreens Boots Alliance (NASDAQ:WBA) will acquire Rite Aid Corporation (NYSE:RAD) and anyone who owned RAD stock will be looking for a new investment. Fortunately, you don’t have to look far. The best place to put your Rite Aid stock profits is in Walgreens stock.
Not only is Walgreens stock 11.5% off the high it set last year, but the Rite Aid acquisition is going to create cost synergies, new customers, and remove a major competitor. Furthermore, it will instantly make WBA stock multiples more attractive.
Why Rite Aid merger creates Walgreens stock value
What many don’t realize is that Walgreens is acquiring $30 billion in revenue at 0.27 times sales. Meanwhile, WBA stock trades at 0.79x sales right now.
Therefore, Walgreens Boots Alliance is acquiring Rite Aid Corporation at a far lower multiple than it trades, which will thereby push its own multiples lower. Walgreens stock already trades at 15.5x times forward earnings, which is not expensive by any stretch of the imagination.
However, we believe that after cost savings and Rite Aid’s acquired profits, WBA stock is actually trading closer to 13.5x forward earnings. Remember, Walgreens is divesting roughly 700 stores, or 5% of the combined store count. It is not getting rid of all the redesigned, good performing Rite Aid stores.
Instead, it is parting ways with the junk that has weighed on Rite Aid and kept RAD stock at a lower multiple with lower profit margins. Once Walgreens acquires Rite Aid, minus the 700 stores it hand picked to divest, there’s a good chance the combined business will perform far better than analysts, investors, or even Walgreens expects.
At the end of the day, 0.60x sales and 13.5x forward earnings is too cheap for WBA stock. Once the merger completes, Walgreens is going to have high double digit growth, a cheap multiple, and cost cutting opportunities galore.
Continue to pg. 2 for details on a major Walgreens stock catalyst