Is now the right time to own Rite Aid Corporation (NYSE:RAD)? Shares have been crushed this year, falling some 55% as investors worry whether the merger with Walgreens Boots Alliance Inc (NASDAQ:WBA) will fall apart. However, the company’s fiscal fourth-quarter earnings report out Tuesday, April 25, provided some reassuring news that things will be OK for RAD stock … even in a bad-case scenario.
Rite Aid is up 6% this morning as a result, and may indeed have found bottom.
A Healthier-Than-Expected Quarter
Rite Aid’s fourth-quarter fiscal 2016 earnings results, reported Tuesday, weren’t breathtaking. However, the top- and bottom-line beats do show that the embattled drug store chain is performing much better than RAD stock would indicate.
For the quarter that ended March, Rite Aid reported net loss of $21.1 million, or 2 cents per share. On an adjusted basis, the company broke even, which beat Street estimates for a 2-cent loss.
Fourth-quarter revenue came to $8.5 billion, rising 2.7% year-over-year, compared to $8.27 billion in revenue a year ago. Retail Pharmacy Segment revenues rose 4.3% to $7.1 billion, compared to the 3.1% decline in the third quarter. This offset the 1.3% decline in the company’s Pharmacy Services Segment, which came to $1.5 billion.
Fourth quarter same-store sales declined 3% year-over-year, driven by a combination of 4.3% decline in pharmacy sales and 0.3% fall in front-end sales.
Rite Aid, which lost 15% of its value a week ago, has gotten pummeled amid investor concerns that its $17.2 billion proposed merger with larger rival Walgreens — announced in October 2015 — won’t close.
But with Q4 now out of the way, the Camp Hill, Pennsylvania-based company can focus on its long-term future — independent or otherwise.
In either case, Rite Aid, on the heels of its solid Q4 results, looks like a solid buying opportunity.
Bottom Line on RAD Stock
“We remain confident that the completion of our proposed merger with Walgreens Boots Alliance is in the best interest of Rite Aid shareholders, customers and associates,” CEO John Standley said in a statement. “However, despite our team’s continued focus on growing our business, the extended duration of the merger process is having a negative impact on our results.”
That’s Standley saying that the continuous drag of the Walgreens deal has impacted Rite Aid stock, but not the company. Meanwhile, Walgreens efforts to appease federal regulators, including divesting assets to Fred’s, Inc. (NASDAQ:FRED), has done little to accelerate regulators’ willingness to green-light the deal.
Nevertheless, with Rite Aid seemingly operating on its own state objectives, RAD stock should begin to trade on its own merits.
Fairly or unfairly, Rite Aid has been and may remain handcuffed to Walgreens until federal regulators hop off the fence and make a decision. But investors would do well to note that Rite Aid is performing much better than the market seems to be giving it credit for — today’s bump will only take the stock just a little off 52-week lows, and shares are still trading well below the price of Walgreens’ revised buyout agreement.
I still see this as a buying opportunity of RAD stock, especially on the company strong Q4 results.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.