Rite Aid Stock Could Move Higher From $10

September 28th, 2020 by Trefis Team
+5776.61%
Upside
0.04
Market
2.35
Trefis
RAD: Rite Aid logo
RAD
Rite Aid

Despite over a 30% decline in Rite Aid stock (NYSE:RAD) since the beginning of this year, at the current price of $10 per share, we believe Rite Aid stock has significant upside. Why is that? The key is Rite Aid’s stock is still roughly 30% lower than it was at the beginning of 2019. Our dashboard, Why Rite Aid Stock Moved -29%?, provides the key numbers behind our thinking, and we explain more below.

Some of this decline over the last 2 years is justified given the company failed to post revenue growth, which has remained in the range of $21.5 to $22.0 billion over the past 3 years. This clubbed with 0.7% growth in total shares meant its revenue per share grew marginally from $409 to $412. So what explains the drop in stock price is primarily the company’s P/S ratio. Rite Aid’s P/S ratio changed from 0.03x in 2018 to 0.02x currently. There is an upside when the current P/S is compared to levels seen in the past years, P/S of 0.04x as recent as late 2019.

So what’s the likely trigger and timing to this upside?

Relevant Articles
  1. Key Takeaways and Trends From Rite Aid’s Q2 FY’19 Earnings
  2. How Has Rite Aid Performed In FY 2018?
  3. What Are The Chances Of Rite Aid’s Recovery From Its Current Slump?
  4. Why Is Rite Aid’s Stock Performing So Poorly?
  5. Walgreens And Rite Aid Deal Is Back On Track And Both The Companies Are Expected To Gain
  6. Walgreens, Rite Aid Earnings And The End Of The Merger

RAD stock has plunged over 25% since last week, after the company reported its second quarter fiscal 2021 (fiscal ends in February) earnings, which were actually better than the street estimates. The company benefited from an increase in Medicare Part D membership, adding $479 million (or 29%) in incremental sales for the Pharmacy Services segment during the quarter. Rite Aid’s earnings on an adjusted basis was $0.25 per share compared to $0.12 per share in the prior year period, and $0.11 per share average consensus estimate before the earnings announcement.

But wait, why did the stock crash 25% despite the beat? This can largely be attributed to the company’s full year guidance. While Rite Aid guided for stronger revenue growth, to be in the range of $23.5 billion and $24.0 billion, marking 8% y-o-y growth at the mid-point of the range compared to average annual growth rate of 0.9% over the last 3 years, its guidance for earnings was way below at $0.09 at the upper of the range, compared to average consensus of $0.38.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.  

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams