Reading Rite Aid’s (NYSE:RAD) second quarter of 2019 conference call transcript, I came upon a realization: it isn’t hard to guess where newly appointed CEO Heyward Donigan plans to take the company over the next six to 12 months. If you own RAD stock, her turnaround plan is Rite Aid’s last great hope.
If Donigan fails, it’s likely Rite Aid stock could cease to exist as we know it.
Are health plans Rite Aid’s savior? You better believe it. Here’s why:
Finding a Strategic Buyer Is Not the Answer
After previous CEO John Standley failed to find Rite Aid a strategic buyer — both the Walgreens Boots Alliance (NASDAQ:WBA) and Albertson’s merger proposals were terminated — Donigan was hired to replace Standley. Ultimately, he left the company after nine years in the top job.
Not only did Standley fail to find a strategic buyer, but the sale of 1,932 stores to Walgreens cut Rite Aid’s store count by 40%. That move made it less of a national player than it already was.
Crippled by the sale, Rite Aid’s board concluded it had to go in a different direction to survive. Health care became the obvious pivot. And Donigan’s 30 years of experience in the healthcare industry made her a quality candidate.
“I see tremendous opportunity to revitalize the company’s position as a leader in meeting the health and wellness needs of customers and patients through our store and pharmacy benefit management platforms,” Donigan stated at the time of her hiring in August.
In fairness to Standley, he was a crucial part of restoring the company to profitability. First, he did so as COO from 2008 to June 2010, when he was promoted to CEO. However, the fact that he couldn’t get Rite Aid over the goal line made it crystal clear to the board: finding a third strategic buyer wasn’t an option.
And this is where Donigan comes in.
The Pharmacists Are Key
Donigan’s comments in the company’s Q2 2019 conference call about her background in health care attracted investors; particularly, this was the case about making health plans a key focus for the company. However, I believe it is what she said about the retailer’s pharmacists that stands out.
“Pharmacists are the ultimate physician extender, if you think about it. They — we are — our pharmacists touch probably more members on a daily basis and engage more consumers on a daily basis than any other provider in America,” Donigan stated while answering an analyst’s question. “And that has got to have tremendous value not only to us, to our consumers but also to our health plan partners.”
Rite Aid’s EnvisionRx is a pharmacy benefit management (PBM) solution that can provide employers of all sizes and health insurers with an independent alternative from the larger PBMs which are combining with their health plan competitors.
By remaining independent, Rite Aid’s pharmacists are first providing health care services to many of its customers. But they’re also giving those customers a real alternative when it comes to pharmacy benefits.
Rather than trying to fit a square peg into a round hole, Rite Aid is leveraging Donigan’s experience with its biggest strength — its pharmacists — to deliver value-added services for its customers.
It’s hard to know what the outcome will be, but once Donigan has rolled out the company’s entire strategic plan in the next few months, owners of Rite Aid stock will have a better idea of the odds for success.
Is RAD Stock Price Worth Buying Below $7?
If you are an aggressive investor, I would say yes. The rest of our readers should wait for Donigan to flesh out more of the strategic plan.
Are health plans Rite Aid’s savior? This is most likely the case.
More importantly, it’s not another lame attempt to sell itself to the highest bidder.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.