Drugstore operator Rite Aid Corporation (NYSE: RAD) stock has been pummeled since hitting a post-pandemic high of $32.48 on Jan. 28, 2021. The Company was a benefactor from the pandemic as traffic increased from COVID testing and vaccination distribution. However, as the populace recovers and pandemic traffic falls, its core business is showing a reversion back to… sucky (for lack of a better word). Rite Aid hit a sentiment low point on April 7, 2022, when Deutsche Bank downgraded it to a Sell rating with a rock bottom price target of $1 on the post-pandemic recessive effects as a going concern. As the pandemic migrates to the rearview mirror, so do any prospects of profits for Rite Aid. It’s fiscal Q4 2022 earnings surprised investors by nearly doubling the loss estimates by analysts. The Company lost (-$1.63) per-share in fiscal Q4 2022 after hitting a profit of $0.38 in fiscal Q1 2021. Doom and gloom is the sentiment for Rite Aid shares, but there could be an opportunity for value players especially with a short interest that’s north of 30%. It’s still one of the largest pharmacy benefits managers (PBM) in the country generating over $23 billion in annual sales. Its assets could be a benefit to a larger player. Note that Walgreens (NYSE: WBA) purchased 1,932 stores and three distribution centers for $4.375 billion in March 2018 after initial attempts to acquire the whole company at $9 per share was blocked by regulators in 2015. Risk-tolerant investors looking for a value and potential acquisition play can look for opportunistic pullbacks in shares of Rite Aid.
Q4 Fiscal 2022 Earnings Release
On April 14, 2021, Rite Aid released its fiscal fourth-quarter 2022 results for the quarter ending February 2022. The Company reported an earnings-per-share (EPS) loss of (-$1.63) excluding non-recurring items versus consensus analyst estimates for a loss of (-$0.57), a $1.06 miss. Revenues grew 2.5% year-over-year (YoY) to $6.07 billion, beating analyst estimates for $5.96 billion. Rite Aid CEO, Heyward Donigan commented, “We exceeded our 2022 plan amid continuing challenges of the COVID-19 pandemic. As we look forward to the year ahead, we are ready and energized to compete in a new post-pandemic normal. We demonstrated the important role that pharmacists play in the everyday health of our customers and are well-positioned to grow in a trillion-dollar pharmacy market through our continued leadership as a full-service pharmacy company.”
Improved Full-Year Fiscal 2023 Guidance
Rite Aid issued full-year fiscal 2023 EPS between (-$1.06) to (-$0.53) versus (-$1.22) consensus analyst estimates. The Company expects revenues of $23.1 billion to $23.5 billion versus $23.44 billion analyst estimates. Fiscal 2023 adjusted EBITDA is expected between $460 million to $500 million and expects savings of $170 million on its cost rationalization program.
Conference Call Takeaways
CEO Donigan maintained a positive and optimism tone, “I’m really excited to talk to you today about our strategy for fiscal ’23 and beyond. But before I outline our growth plan for fiscal ’23, I’d like to talk briefly about our expectations for our business as we move beyond the height of the pandemic… It’s important to note that COVID’s impact on our business was not a tailwind . While we saw benefits from the pandemic-related services we provided, COVID also brought significant headwinds to our business. Those included supply chain pressures impacting our inventory and sales, store traffic shifting due to continued work from home, which especially impacts urban areas, and a tightening labor market.” He tried to pacify concerns about the business in the post-Covid era and a return to an improved normal. As consumers reduce their mask-wearing, the Company is seeing a boost in prescriptions and OTC products for cold, flu and cough especially for supers spreaders, kids. Maintenance prescriptions and ancillary vaccines are seeing an increase in demand since they couldn’t get them when receiving COVID vaccines. He is seeing the drop COVID vaccine business being mitigated by other important vaccines as well as seeing an uptick in COVID antivirals like Paxlovid. Rite Aid administer 14.3 million COVID vaccines and 3.6 million PCRF tests in fiscal full-year 2022. He flipped the narrative, “In summary, passing the peak of COVID represents a positive inflection point for our business. And we are excited to leverage what we have learned, continue to be really nimble and take advantage of the growth opportunities available to us.” CEO Donigan stressed the growth driver moving forward is the pharmacy business with a $1 trillion TAM. He elaborated on plans of expanding their PBM footprint in underserved areas and bolstering its tools to help pharmacists provide value-added services. He expects EBITDA growth of 10% to 20% by fiscal 2025 from fiscal 2022 levels.
RAD Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames enables a precise view of the playing field for RAD stock. The weekly rifle chart breakdown formed on the nasty earnings reaction as share collapsed for the past two-weeks. The Deutsche Bank analyst downgrade to $1 caused a stampede of selling ahead of its disastrous fiscal Q4 2022 release earnings enabling it to put in a bottom ahead of time. The weekly 5-period moving average (MA) support is falling at $19.11 with a 15-period MA at $18.90. The weekly lower Bollinger Bands (BBs) overlap the $13.71Fibonacci (fib) level. The weekly market structure high (MSH) sell triggered under $22.96. The weekly stochastic crossed down off the 30-band as a weekly inverse pup breakdown starts to form. The daily rifle chart downtrend has the 5-period MA at $16.08 with the oversold daily stochastic attempting to coil off the 5-band. The daily market structure low (MSL) triggers above $16.34. The daily 15-period is nearing the $18.61 fib. Prudent investors can monitor for opportunistic pullback levels at the $15.18 fib, $14.53 fib, $13.71 fib, $12.24 fib, and the $10.52 fib. Upside trajectories range from the $18.61 fib up towards the $25.81 fib.