Rite Aid Corporation (RAD - Get Rating) offers a wide range of whole-being health products and services for the entire family through over 2,300 retail pharmacy outlets in 17 states. It operates through two segments, Retail Pharmacy, and Pharmacy Services.

Its shares surged nearly 40% last week based on an impressive first-quarter earnings report. The company has boosted its fiscal year sales forecast. RAD now forecasts fiscal 2023 revenue 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 expand to between $246.3 million and $203.3 million owing to increased impairment charges for closed shops and increased interest expense due to recent and projected interest rate hikes throughout the year.

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

Inadequate Financials

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

Negative Profit Margins

RAD’s trailing-12-month gross profit margin of 20.6% is 38.5% lower than the industry average of 33.4%. Also, its trailing-12-month ROA, ROE, and net income margin are negative 7.4%, 213.4%, and 2.6%, respectively. Moreover, its trailing-12-month negative EBITDA margin of 1.62% is 86.6% lower compared to its industry average of 12.1%.

Consensus Rating and Price Target Indicate Potential Downside

Each of the three Wall Street analysts that rated RAD rated it a Sell. The 12-month median price target of $5.33 indicates a 20.9% potential downside. The 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 Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. RAD has a D for Sentiment, which is justified given the consensus price target and rating.

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

Beyond what I’ve stated above, you can view RAD ratings for Value, Growth, Stability, Momentum, and Quality here.

Bottom Line

Despite beating top-line analysts’ estimates, RAD’s worsening bottom-line performance is concerning. 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 the stock is best avoided now.

How Does Rite Aid Corporation (RAD) Stack Up Against its Peers?

While RAD has an overall D rating, one might want to consider its industry peers, CVS Health Corporation (CVS - Get Rating), which has an overall A (Strong Buy) rating, and Walgreen Boots Alliance (WBA - Get Rating), which has an overall B (Buy) rating.

RAD shares fell $6.74 (-100.00%) in premarket trading Friday. Year-to-date, RAD has declined -54.12%, versus a -19.98% rise in the benchmark S&P 500 index during 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. More...

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