Kroger (NYSE:KR) recently disclosed plans to divest its specialty pharmacy business to CarelonRx, a subsidiary of health insurance provider Elevance Health (ELV). The deal is expected to close in the second half of 2024 and is unlikely to affect its financial guidance for 2024.
KR has been offering specialty pharmacy services since 2012, catering to patients with chronic illnesses. It is important to highlight that Kroger’s specialty pharmacy business is separate from in-store retail pharmacies and The Little Clinics. Both of these businesses are not included in this deal.
Colleen Lindholz, President of Kroger Health, said that the divestment decision follows a strategic review of the company’s asset portfolio. The review revealed that the unit is better positioned to achieve its full potential outside of Kroger’s core business.
KR-ACI Merger Roadblock
The move comes as Kroger is facing difficulties in closing its $24.6 billion merger with Albertsons (ACI), announced in October 2022. The regulators have shown concerns over the combined company’s size and its potential influence on grocery prices.
Therefore, KR and ACI have undertaken divestitures of certain business segments to secure the confidence of regulators. In September, the companies reached an agreement to sell 400 stores and several private-label brands to C&S Wholesale Grocers.
However, the Federal Trade Commission found the proposal inadequate, noting that the merged company would have more than 5,000 stores and nearly 4,000 retail pharmacies.
What Is the Price Target for KR?
Kroger shares are up about 24% so far this year, outperforming the S&P 500’s (SPX) nearly 7% gain. Further, Wall Street analysts are cautiously optimistic about KR stock.
It has a Moderate Buy consensus rating with five Buy and six Hold recommendations. Analysts’ average price target on Kroger stock of $58.27 implies 3.7% upside potential from current levels.
