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What follows is a list of pharmacies that are in different business positions. While CVS (NYSE:CVS) is benefiting from Walgreen's (NYSE:WAG) loss of the Express Scripts (NASDAQ:ESRX) network, Rite Aid (NYSE:RAD) is bleeding millions in cash. Based on my review of the fundamentals, I would not be too surprised if either Walgreen or CVS acquired Rite Aid. Value creation would far outweigh any realistic set of regulatory concessions (see here).

CVS

CVS trades at a respective 17.2x and 12.1x past and forward earnings, with a dividend yield of 1.5%. Consensus estimates for CVS' EPS forecast that it will grow by 16.8% to $3.27 in 2012, and then by 12.8% and 14.6% in the following two years. Assuming a multiple of 15x and a conservative 2013 EPS of $3.62, the stock would hit $54.30 for 20.2% upside.

CVS is much larger than the other two companies highlighted in this article and is also the least volatile. Moreover, CVS' pharmacy benefits management operations has a stellar 98% customer retention rate. With the population aging while healthcare costs rise, the company is integrating its retail pharmacy and clinics together. I am already optimistic about the extent to which synergies have been unlocked from the Universal American takeover. CVS continues to gain share in the regions where it is operating and can thus leverage this strength by acquiring struggling competitors.

Walgreen

Walgreen trades at a respective 12.1x and 12.3x past and forward earnings, with a dividend yield of 2.5%. Consensus estimates for Walgreen's EPS forecast that it will decline by 0.8% to $2.62 in 2012 and then turnaround to grow by 9.9% and 9.4% in the following two years. Assuming a multiple of 15x and a conservative 2013 EPS of $2.85, the stock would hit $42.75 for around 20% upside.

Management recently announced that it was boosting its quarterly dividend by more than 28%. After receiving regulatory approval to acquire Medco, many have speculated a turnaround in the debacle with Express Scripts. A more advantageous position would be to take over Rite Aid and then leverage the added store holdings to secure a new contract. The firm certainly has an attractive balance sheet to finance M&A activity.

Rite Aid

Rite Aid is currently bleeding money. However, here's the thing: losses are substantially declining and free cash flow is currently positive. Consensus estimates for Rite Aid's EPS forecast that its losses will diminish 51.2% to -$0.21 in 2013 and then by 42.9% and 58.3% in the following two years. While it is a bit of a logarithmic decline, the trend is still more healthy than what the market acknowledges. Free cash flow of $16M in FY2012 also appears to be just a start.

For the year to date, Rite Aid has appreciated by 16.3%. This is due to two factors: (1) risk discounting is dissipating, and (2) momentum is attracting back investors. Same-store sales and adjusted EBITA increased for the fifth consecutive quarters.

Source: CVS, Walgreen Can Close 20% Discount By Acquiring Rite Aid