McKesson Expands Agreement with Rite Aid - Analyst Blog

McKesson Corporation ( MCK ) recently announced that it has expanded its distribution agreement with Rite Aid Corporation ( RAD ).

The agreement includes both brand and generic pharmaceuticals. The new agreement spans for five years up to Mar 2019.

The agreement will allow both the companies to leverage each other's expertise. Rite Aid is one of the leading national drugstore chains in the U.S. while McKesson is a leader in pharmaceutical sourcing and supply chain management.

As per the terms of the expanded agreement, McKesson will be responsible for sourcing and distribution of generic pharmaceuticals for Rite Aid as a part its proprietary One Stop Generics program. On the other hand, Rite Aid stores will benefit from McKesson's daily direct-to-store delivery service model for brand and generic pharmaceutical products.

We remind investors that Rite Aid has been McKesson's customer for more than 16 years. During fiscal 2013, Rite Aid purchased brand and some generic pharmaceuticals for approximately 88.7% of the dollar volume of its prescription drugs from McKesson under a supply contract (which is scheduled to expire in Mar 2016).

We note that McKesson has been actively pursuing deals and acquisitions to drive growth. In Feb 2014, McKesson acquired a majority stake in Germany-based drug distribution company Celesio for approximately €23.50 per share. Celesio provides logistics and services in the pharmaceutical and healthcare sector with operations in approximately 14 countries.

The deal will allow McKesson to gain a foothold in Europe, thereby geographically expanding its core operations further. The combined company is expected to generate annual revenues in excess of $150 billion with operations in twenty countries.

McKesson currently carries a Zacks Rank #3 (Hold) while Rite Aid Corporation holds a Zacks Rank #4 (Sell). Stocks that currently look attractive include Cardinal Health, Inc . ( CAH ) and Align Technology Inc . ( ALGN ). Both carry a Zacks Rank #1 (Strong Buy).

ALIGN TECH INC (ALGN): Free Stock Analysis Report

CARDINAL HEALTH (CAH): Free Stock Analysis Report

MCKESSON CORP (MCK): Free Stock Analysis Report

RITE AID CORP (RAD): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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