) recently completed the acquisition of certain assets of
privately owned regional pharmacy chain Kerr Drug, including 76
retail drugstores and specialty pharmacy business. The
acquisition also includes a distribution center. However,
financial terms of the acquisition agreement are yet to be
Earlier in September, Walgreens had declared that the takeover
will be immaterial to earnings per share in fiscal 2014.
Meanwhile, the acquisition will seamlessly strengthen the
company's foothold in Southeastern U.S. as North Carolina (the
market which Kerr Drug serves) represents one of the fastest
growing markets in the country.
Kerr Drug's specialty pharmacy and retail drugstores declared
sales of $381 million in fiscal 2012. Walgreens and Kerr Drug
conducted business separately prior to the closure of the
acquisition. Moreover, Kerr Drug's long-term care pharmacy
business has been excluded from the acquisition deal.
Despite the integration of the acquired business of Kerr Drug
with Walgreens' operations, the former will continue to serve
customers under its current brand name going forward. Walgreens
also plans to reconstruct the role of community pharmacy services
in the healthcare industry.
Of late, Walgreens has readily adopted the inorganic route to
grow its business in the domestic market and abroad. The
rationale to take over Kerr Drugs is another means to maintain
the company's industry leadership among other retail drugstores
in the U.S. Walgreens should attempt to generate more customer
traffic as it looks to consolidate its foothold in the lucrative
North Carolina region that covers 15 metropolitan areas.
The inclusion of Kerr Drug's specialty pharmacy business in
Walgreens' operations is another upside. In the drug retail
space, specialty pharmacy represents a high-growth avenue. The
soaring demand for specialty pharmacy, especially in the ongoing
decade, is likely to accelerate growth for the company.
Although Walgreens continues to face challenges in the U.S.,
the drugstore chain should benefit from demographic tailwinds and
the generic wave in the pharmaceutical industry. Currently, the
stock carries a Zacks Rank #3 (Hold).
While we remain on the sidelines regarding Walgreens, other
drug retailers like
Rite Aid Corporation
GNC Holdings Inc
) are worth considering. While Rite Aid holds a Zacks Rank #1
(Strong Buy), the other two stocks carry a Zacks Rank #2
GNC HOLDINGS (GNC): Free Stock Analysis
HERBALIFE LTD (HLF): Free Stock Analysis
RITE AID CORP (RAD): Free Stock Analysis
WALGREEN CO (WAG): Free Stock Analysis Report
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