This post was just published on ZYX Buy Change Alert.
WBA is long from $29.60. As of this writing it is trading at $79.69. RAD is long from $4.95 and is trading at $7.11 as of this writing.
RAD has a buyout offer from WBA for $9 cash. The stock is trading at a substantial discount to the offer because of the concern that the government will not approve the buyout. WBA, on its earnings conference call stated that they are confident of an approval of the buyout by the government.
Previously, WBA has stated that it would be open to divesting up to 1000 stores but hopes that divestment may be only 500 stores to gain approval.
If WBA’s increased confidence is real, then there is a lucrative opportunity to buy RAD right here. However in our analysis, there is no way to tell if this is simply posturing or the increased confidence real.
In the big picture, if the buyout is approved, in the U. S. drug store business there will be a duopoly between WBA and CVS. Hence the concern about the merger not being approved is legitimate.
KR has been a likely buyer but there are recent reports that KR interest is waning. FTC is believed to be pressing WBA to divest stores to a financially strong buyer.
WBA states that RAD acquisition will be accretive by $0.05 to $0.12.
WBA reported earnings better than the consensus and the whisper numbers but reported revenues lower than the consensus. WBA guides in line with the consensus.
As of this writing WBA stock is up on positive comments about RAD.
WBA buy zone remains $68 to $77.67. The buy zone is designed for a 70% probability of a fill over the next 120 days. Target zone remains $122 to $126. This is a very long-term position. Recommended position size is 10 – 50% of the full core position size. Stop zone remains $53 to $54.73, but should be a mental stop.
What To Do About RAD Now
Those in the stock may continue to hold.
Those not in the stock and are conservative may consider staying away from the stock at this time.
Those not in RAD stock and are aggressive may consider accumulating up to 20% of the full core position size in the zone of $6.60 to $7.10 with the intention of adding more if the merger is not approved and the stock falls.
What To Do About WBA Now
Those in WBA stock may continue to hold.
Those not in the stock may consider scaling in on a dip into the buy zone.
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