Rite Aid Stock Plummets. Why This Analyst Believes the Shares Could Fall to $1.
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A person walks into a Rite Aid store
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Rite Aid
stock was plummeting on Thursday after Deutsche Bank cut its price target for the stock to a new Street low ahead of the pharmacy retailer’s earnings report next week.
The shares were down 17% to $7.05 on Thursday. The stock has lost more than 50% this year.
Deutsche Bank analyst George Hill downgraded Rite Aid (ticker:
RAD
) to Sell from Hold and slashed his price target to $1 from $16.
Rite Aid reports fourth-quarter earnings on April 14, and investors will be closely watching. The company’s 2023 guidance will be of particular interest, Hill said. In order to continue operating, Rite Aid needs to generate between $400 million to $450 million in annual adjusted Ebitda, or earnings before interest, taxes, depreciation, and amortization, he said.
“At a number below $400mm, the equity arguably has no value as the company is not in a position to generate real returns to shareholders,” Hill wrote in a research note on Thursday.
Previous guidance from management has indicated that the company could generate well over $430 million in Ebitda, but Hill believes that preliminary outlook “seems unattainable.”
“Unfortunately, we believe Covid has hastened the decline of the retail pharmacy segment and we see the potential for a dramatic negative inflection point for RAD shares,” he added.
A significant portion of Rite Aid’s revenue over the last year has been driven by Covid-related contributions, such as vaccinations and testing. As demand for testing and vaccines wanes or remains stagnant, the company could struggle to make up those revenues, Hill said.
Analyst sentiment on Rite Aid has been gradually souring over the last few months. All three analysts covering the stock on FactSet rated it a Sell, with a mean target price of $9.
Write to Sabrina Escobar at sabrina.escobar@barrons.com
