GNC Gains As Buyout Rumors Of Vitamin Shoppe Resurface

Over the past few quarters, the health and wellness retail chain, GNC Holdings Inc. (NYSE:GNC) has recorded a significant sales dip resulting in a continuous downtrend in its shares. However, the rumor to take over its rival and multi-channel specialty retailer Vitamin Shoppe, Inc. that has been doing the rounds for quite some time, has provided a slight impetus.

Accordingly, yesterday, with GNC’s sudden cancellation of an appearance at the Jefferies 2016 Consumer Conference (as informed by Seeking Alpha), the hope of the merger to materialize soon has resurfaced, driving shares of the company up by 2.63% at closing.

The Vitamin Shoppe buyout story first buzzed in immediately after the company’s earnings call in the last quarter. GNC had announced that in response to its continuous sales dip, its board of directors had commenced a wide range of strategic and financial alternatives to increase shareholder value. The review emphasized potential value-maximizing alternatives such as partnerships and other value-creating collaborations, or a potential sale of the company among many other probable strategies. These initiatives came as a major boost for investors, resulting in an immediate 7% rise in share price on May 2.

Although the market has reacted positively so far to the rumor, it is hard for the broker firms to come to a definite conclusion. While JP Morgan is positive about the potential tie-up between GNC and Vitamin Shoppe, Morgan Stanley (NYSE:MS) is still concerned about GNC’s ongoing struggle with its top line due to the lack of product innovation, weak distribution controls and dependence on promotions.

While both GNC and Vitamin Shoppe are in their lackluster phase of growth, analysts are doubtful whether the combination will fetch something fruitful for the consolidated business anytime soon. According to an article by Shelly Banjo in Triblive, “…it's not like either company has an A+ management team capable of figuring out how to turn two struggling retailers into one, big successful company.”

Zacks Rank & Key Picks

Currently, GNC Holdings has a Zacks Rank #4 (Sell). Better-ranked medical stocks are Baxter International Inc. (NYSE:BAX) , Herbalife Ltd. (NYSE:HLF) and Boston Scientific Corp. (NYSE:BSX) . All the three stocks hold a Zacks Rank #2 (Buy).