RAD: Rite Aid shares jumped 40% last week

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Rite Aid Corporation (GDR) offers a wide range of comprehensive family health products and services at more than 2,300 pharmacy outlets in 17 states. It operates through two segments, Retail Pharmacy and Pharmacy Services.

Its shares jumped nearly 40% last week on the back of an impressive first-quarter earnings report. The company raised its sales forecast for the year. RAD now forecasts revenue for fiscal year 2023 of $23.6 billion to $24 billion, up from $23.1 billion to $23.5 billion previously forecast.

However, the stock is down 58.7% over the past year and 54.1% year-to-date to close yesterday’s trading session at $6.74. RAD expects its net loss to range between $246.3 million and $203.3 million due to higher impairment charges for closed shops and higher maintenance charges. interest due to recent and expected increases in interest rates throughout the year.

Here’s what could shape RAD’s performance in the short term:

Inadequate finances

RAD’s revenue decreased 2.4% year-over-year to $6.01 billion for the first quarter ended May 28, 2022. Its net loss increased 743.9% from the previous year’s value to reach $110.19 million. The company’s loss per share increased 745.8% from the year-ago quarter to $2.03. Additionally, its net cash used in operating activities was $252.24 million.

Negative profit margins

Last 12 months of RAD Gross margin of 20.6% is 38.5% below the industry average of 33.4%. Moreover, its ROA, ROE and 12-month net profit margin are negative at 7.4%, 213.4% and 2.6% respectively. Additionally, its negative 12-month EBITDA margin of 1.62% is 86.6% below the industry average of 12.1%.

Consensus Rating and Price Target Indicate Downside Potential

Each of the three Wall Street analysts who rated RAD rated it a sell. The 12-month median price target of $5.33 indicates a Potential drop of 20.9%. Price targets range from a low of $4.00 to a high of $8.00.

POWR ratings reflect bleak outlook

RAD has an overall D rating, which equates to a sale in our own POWR Rankings system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary scoring system also rates each stock against eight different categories. RAD has a D for Sentiment, which is warranted given the consensus price target and rating.

Of the five B-rated stocks Medical – Pharmacies industry, RAD is ranked #4.

Beyond what I said above, you can see RAD ratings for Value, Growth, Stability, Momentum, and Quality here.

Conclusion

Although exceeding high-level analyst estimates, RAD’s deteriorating performance is cause for concern. Analysts expect its EPS to decline 34.1% in the current quarter ending August 2022 and 213.3% in the next quarter ending November 2022. So we think it better to avoid the action now.

How does Rite Aid Corporation (RAD) compare to its peers?

Although RAD has an overall D rating, one might consider its industry peers, CVS Health Corporation (SVC), which has an overall rating of A (Strong Buy), and Walgreen Boots Alliance (WBA), which has an overall rating of B (buy).


Shares of RAD fell $6.74 (-100.00%) in premarket trading on Friday. Year-to-date, the RAD is down -54.12%, compared to a -19.98% rise in the benchmark S&P 500 over the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college, she majored in finance and is currently pursuing the CFA program and is a Level II candidate. After…

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