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Could Rite Aid be another takeover target?

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  • While Rite-Aid is a drugstore, its main growth driver is the Pharmacy Benefits Management (PPE) business
  • Rite Aid stock fell below pandemic lows to $4.68 as it reported a shocking loss (-$1.63) per share
  • Bullish investors believe the COVID business has bought the company enough time to build its pharmacy business

drugstore operator Rite Aid Corporation (NYSE: RAD) the stock is down (-38%) over the year but is up more than 40% from its low of $4.68 in May. The pandemic earnings are largely over for Rite-Aid as it went from a $0.38 per share earnings in the fiscal first quarter of 2022 with shares peaking at $32.48 in January 2021 thanks to COVID vaccination. A year later, Rite Aid stock plunged below the pandemic low to $4.68 as it reported a shocking loss (-$1.63) per share in fiscal Q4 2022, literally doubling consensus analysts’ loss estimates. Much of this disaster can be attributed to the normalization of the business, in addition to restructuring costs associated with the pharmacy business. The pharmacy services segment was the driving force behind CVS Health (NYSE: CVS) earnings were better as it saw a 12% increase in the quarter. Rite Aid’s managed to reduce its fiscal first quarter 2023 losses to (-$0.60) per share, much to the relief of investors and signaling a potential reversal. Bullish investors believe the COVID business has bought the company enough time to build its pharmacy business, which could be a prized one acquisition target: or at least one second half turnaround story for the healthcare player.


MarketBeat.com – MarketBeat

Elixir growth engine

While Rite-Aid is a drugstore, its primary growth engine is pharmacy benefits management (PPE). The company has transformed it into a wholly owned subsidiary called Elixir, which offers pharmacy benefits including Medicare-approved prescription drugs, prescription discounts, mail order and specialty pharmacy solutions. The company has gone through a transformative reorganization as it seeks to strengthen its pharmacy business. This resulted in estimated losses in the fiscal fourth quarter of 2021 doubling, prompting Deutsche Bank to post a sell recommendation with a $1 price target for the stock. As Elixir continues to grow in NAV, it becomes more attractive as an acquisition target. It is speculated that activist investors are pushing for a spin-off or sale of Elixir to bolster Rite Aid stock.

Blocked Walgreens Merger in 2015

A takeover attempt by Walgreens (NYSE: WBA) to buy Rite-Aid for $9 a share was blocked by regulators in 2015. After years of speculation, Walgreens eventually bought 1,932 Rite-Aid stores and three distribution centers for $4.4 billion.

Spear Point Capital Management Takeover Bid

In April 2022, Spear Point Capital Management had made a non-binding proposal to acquire Rite Aid for $815 million or $14.60 per share. On April 21, 2022, the Board of Directors confirmed that it had rejected the non-binding off-market proposal because they questioned the credibility of the offer. They concluded: “In making its decision, the board found, among other flaws, that Spear Point’s proposal failed to provide evidence of funding, required several months of exclusivity, and then called on Rite Aid to spend months soliciting competing offers Point’s proposal was conditional on none of the company’s debts becoming due upon a change of control, which contradicts the terms of nearly all of Rite Aid’s debt instruments.

Stinky earnings smell a little better

On June 23, 2022, Rite Aid announced its fiscal results for the first quarter of 2023 for the quarter ended May 2022. for a loss of (-$0.70), a beat of $0.10. Revenues were down (-2.4%) year-over-year (year-on-year) to $6.01 billion, better than analysts’ estimates of $5.73 billion.

Increased guidance for the whole year 2023

While the company still expects losses for the full year 2023, they are less than before. Rite Aid issued fiscal 2023 earnings per share between (-$1.19) to (-$0.66) versus (-$1.41) consensus analysts. The company expects revenues of $23.6 billion to $24 billion against $22.91 billion analyst estimates. Adjusted EBITDA is expected to be between $460 million and $500 million. Retail Pharmacy segment adjusted EBITDA is expected to be between $320 million and $350 million and Pharmacy Services segment adjusted EBITDA is expected to be between $140 million and $150 million.

Cover in the cards

Heyward Donigan, CEO of Rite Aid, commented: “We continue to make progress on our journey to transform Rite Aid and define the modern pharmacy. The entire Rite Aid team looks forward to playing the role of our pharmacists in improving increase health outcomes.”
Could Rite Aid be another takeover target?

RAD Opportunistic Entry Levels

Using the gun cards on the weekly and daily time frames allows an accurate picture of the playing field for RAD stocks. The Weekly Gun Chart Sellout Finally Hits a Low of $5.04 Fibonacci (fib) level. Stocks managed to rally 40% from the lows. The weekly downtrend reverted to an uptrend with a rising 5-period moving average (MA) support at $7.65 followed by the 15-period MA support at $6.81. The weekly stochastic peaked through the 20 band and tries a mini pup through the 50 band. The weekly upper Bollinger Bands are near the $10.20 fib and the weekly 50-period MA resistance is falling to $10.60. The 200-period weekly MA resistance is just above the $10.20 fib level. the weekly market structure layer (MSL) activated on a breakout to $6.10. The daily gun chart formed a pup breakout with a rising 5-period MA of $8.78, followed by the 15-period MA of $7.97 as it stretches before the daily upper BBs pushing the daily MA by 200 periods overlap at $9.65. Shares rose toward the $8.98 fib on earnings rebound, but fell back to the $6.22 fib before peaking again on potential activist speculation. RAD has a 23% short stake, fueling potential Short press. Investors should be aware that the daily stochastic is falling before considering opportunistic entry levels at the $7.25 fib, $6.68, $6.22 fib, $6.10 weekly MSL trigger, $5.73, $5.43 and the $5.04 fib level. Upward trajectories range from the $11.41 fib level to the $15.90 price level.

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