McKesson will continue sourcing and offering Rite Aid delivery of branded and generic drugs with the deal.
Rite Aid may have benefited from revised terms, Baird's Eric Coldwell said in a note.
Rite Aid cited new "competitive drug pricing" in its press release, and management said the deal represents an "enhancement of value to us" in a conference call, the analyst said.
Why It's Important
McKesson's contract extension win wasn't guaranteed, as Rite Aid had the option to switch to a rival, Coldwell said. Rite Aid had noted poor performance partly driven by generics purchasing, and this raised the possibility of AmerisourceBergen Corp. (NYSE: ABC) displacing McKesson, according to Baird.
Some AmerisourceBergen investors "might be slightly disappointed" McKesson won the contract renewal, Coldwell said.
Rite Aid likely represents a low-single digit percentage of McKesson's earnings, so any pricing revision is unlikely to be material to its fiscal 2019 or 2020 earnings, the analyst said. McKesson told Baird that its prior fiscal 2019 guidance assumed contract renewals, so there are no changes to McKesson's outlook at this time, he said.
Baird continues to hold Neutral ratings on both McKesson and AmerisourceBergen and does not have research coverage of Rite Aid's stock.
Goldman Sachs Bearish On Standalone Rite Aid
Jefferies Downgrades Walgreens On Amazon's Competitive Threat
Public domain photo via Wikimedia.
Latest Ratings for MCK
|Dec 2018||Morgan Stanley||Maintains||Equal-Weight||Equal-Weight|
|Jul 2018||JP Morgan||Maintains||Overweight||Overweight|
View More Analyst Ratings for MCK
View the Latest Analyst Ratings
See more from Benzinga
- The Positives, Negatives Of Altria's .8-Billion Investment In Juul Labs
- Micron CEO Expects Industry Fundamentals To Improve In Second Half Of 2019
- Munster Lays Out 3 Layers To Facebook's Problems, Says Its Best Days Are Long Gone
© 2018 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.