Rite Aid: Smaller Loss, but I'm Not Interested

Posted Jun 23rd 2010 5:30PM by Steven Mallas
Filed under: Earnings Reports, Walgreen Co (WAG), CVS Corp (CVS), Rite Aid Corp (RAD)

Rite Aid Corporation (RAD) may have reported a narrower loss this morning, but you know what? I'm still not going to buy it. As I write this, the stock is up almost 7% on great volume. The quote? $1.08. Yep, it's one of those low-priced equities.

The one-year chart relates a tale of volatility and risk. Nothing more than a vehicle for gambling, if you ask me. Wall Street players who buy Rite Aid are betting on a turnaround. I really don't see the pharmacy chain being worth the trouble right now on that count. Sure, you could invest in the concern and be surprised by a positive change in fortunes down the road, but what if that positive change doesn't occur? Well, the answer is, you'd incur opportunity costs for having capital tied up in a less-than-acceptable fundamental thesis.

According to this article, the company lost 9 cents per share in the first quarter. This was two pennies better than the loss that was observed last year. But don't get all giddy on the data. Check out the comps: same-store sales dipped 1%. No, it isn't the worst decline ever recorded, but I would feel more confident about the business if the metric were on the plus side of things.

I'm sure there are strong believers out there who are convinced this idea will bear fruit sooner rather than later, but I'm not one of them. When you think pharmacies, you think one of two names: CVS Caremark Corporation (CVS) or Walgreen Company (WAG). Rite Aid just doesn't have a similar quantity of brand equity. Therefore, it is simply not as attractive.

Disclosure: I don't own any company mentioned; positions can change without notice.

Tags: CVS, CVS Caremark, featured, inthenews, pharmacy, RAD, rite aid, WAG, Walgreen

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Reader Comments (Page 1 of 1)

6-23-2010 @ 8:07PM

Larry R said...

Buy when nobody wants to. Ford, Citi, and a host of others. If you think these names and RAD are going away then stay away. Otherwise put some in your pocket and forget about it.

It's not the best of the chains but they will make a comeback.

6-24-2010 @ 3:25PM

Jason B. said...

Good thoughts, however the likely play here is a private equity buy-out followed by the parceling out of selected markets to WAG, CVS & dollar store operators. Takes care of FTC issues and makes the RAD debt load more managable.