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Why Rite Aid Corporation (RAD) Stock Might Still Have a Chance

Rite Aid offers greater than 100% upside on a buyout.

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With all the activity surrounding Rite Aid Corporation (NYSE:RAD), the elephant in the room is whether or not investors should buy RAD stock or not. The answer is that I wouldn’t buy RAD stock as an investment, but I would buy it as a speculative trade with substantial possible upside.

RAD stock news has been driven lately by the sale of a bunch of its stores. The FTC approved the sale of a whopping 1,932 stores and three distribution centers to competitor Walgreens Boots Alliance (NYSE:WBA) for $4.375 billion in cold cash.

What we know is that Rite Aid is not a company that is being positioned for growth and certainly not for a turnaround. There is only one arguable direction for Rite Aid now and that is a sale. Management sure isn’t hanging around waiting for some massive turnaround effort to send shares higher.

So the question is whether investors want to get involved with the stock at $1.78 per share and market cap of $1.87 billion.

Frankly, I don’t see why the stock fell from around $2.70 after the deal was announced, since it meant 254 stores fewer got sold than expected. That 10% difference, or about $750 million, should not have mattered so much.

Now, Walgreens can terminate the deal if Rite Aid sells 50% or more of itself to a third party. Yet were that to happen, those stores would likely end up getting sold to another third party or that specific buyer itself.

In the meantime, RAD stock news has centered around the remaining value in the 2,591 stores it currently still owns. Because we know Walgreens offered $4.375 billion for 1,932 stores, we can assume the market value per store is $2.26 million. Thus, the remaining stores alone are worth $5.87 billion.

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