What to Expect From Walgreens and Rite Aid Earnings Ahead of the Merger Deadline

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Both Rite Aid Corp. (NYSE: RAD) and Walgreens Boots Alliance Inc. (NASDAQ: WBA) are scheduled to report their most recent financial results before the markets open on Thursday. These two companies have been dancing around and toward each other this whole year, ahead of their merger decision.

Walgreens has given the Federal Trade Commission (FTC) until July 7 to reach a decision on the pending merger. And so far there haven’t been any conclusive announcements about the deal, but analysts have taken sides ahead of the deadline.

In the meantime, both companies are expected to report Thursday morning. This could be the perfect time to make an announcement, but we will have to wait until then.

According to a recent report from Jefferies, the firm stated its case for FTC approval:

While it is admittedly difficult to handicap the odds of an FTC approval of the pending WBA-RAD transaction, we believe it’s safe to assume that an approval would come with the requirement to divest >1,000 stores. We’ve updated our RAD accretion estimates as a result of the new merger deadline of July 31st and we now estimate that the $1 billion synergy opportunity translates to $0.47 in EPS accretion by fiscal 2020, or 7% EPS accretion. Looking longer-term, we estimate that bringing Rite Aid up to 80% of Walgreen’s store productivity could add another $0.41 to EPS.

On the other hand, if the Rite Aid acquisition is blocked by the FTC, Jefferies does not expect Walgreens to challenge the decision, and management likely will pivot capital deployment toward share repurchases. If Walgreens raises its share repurchase authorization to $5 billion (which Jefferies believes is reasonable given its free cash flow outlook and the excess cash it has generated since the Rite Aid deal was announced) the firm believes that the company could increase earnings by $0.17 per share (3%) and $0.46 per share (7%) in fiscal 2018 and fiscal 2019, respectively.

Thomson Reuters has consensus estimates calling for Rite Aid’s first-quarter results to be a net loss of $0.01 per share and $8.17 billion in revenue. The same period of last year reportedly had $0.01 in earnings per share (EPS) and $8.18 billion in revenue.

Consensus estimates for Walgreens are $1.30 in EPS and revenue of $29.75 billion. The fiscal fourth-quarter of last year reportedly had EPS of $1.18 and $29.5 billion in revenue.

Shares of Rite Aid were last seen up nearly 5% at $3.91 on Wednesday, with a consensus analyst price target of $6.19 and a 52-week range of $2.90 to $8.77.

Walgreens shares were trading at $77.58. The stock has a 52-week range of $75.18 to $89.69 and a consensus price target of $92.86.