It’s been a difficult year for Rite Aid (NYSE:RAD). The pharmaceutical retailer has seen shares declining steadily for the past year, losing almost 60%. However, today brought even more bad news as an analyst issued a particularly bearish prediction and price target. This downgrade may be the final nail in Rite Aid’s coffin. RAD stock has been plunging since, and it doesn’t currently seem as though there’s much chance for a turnaround.
What’s Happening With RAD Stock
This morning it was reported that George Hill of Deutsche Bank downgraded RAD stock from a “hold” to a “sell” rating. Even more grim, though, is his price target. Hill has dramatically lowered his price prediction from $16 to $1.
The news was quick to send RAD into a tailspin. The stock fell more than 15% in pre-market trading and has only continued falling. As of this writing, it is down 27% for the day and looks poised to continue its race to the bottom.
Why It Matters
Hill’s predictions come at an important time for RAD stock. The company reports Q4 earnings in exactly one week on April 14. Investors should mark their calendars for a potential catalyst. If Rite Aid reports positive earnings and surpasses Wall Street expectations, the stock may rebound. If it reports anything else, shares will likely continue falling and prove Hill correct.
In his issued note on RAD, Hill stressed the importance of the upcoming earnings. He stressed that “Rite Aid needs to generate between $400 million to $450 million” in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) if it wants to stay in business. He added that, “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.”
For investors, there is a lot riding on the upcoming report, particularly if the company is in danger of folding.
What It Means
With so much at stake, there’s little incentive for investors to stand by RAD. What’s clear from Rite Aid’s performance is that much of the company’s recent success can be attributed to Covid-19-related products and services, specifically testing and vaccines. As cases in the U.S. have declined, so has demand for preventative measures. However, even the pandemic couldn’t help RAD come close to where it was trading in 2017.
While Rite Aid has been struggling, its rival CVS (NYSE:CVS) has managed to raise its 2022 guidance. Wall Street will be watching carefully for the former’s earnings report, but nothing so far indicates that it will be good news for the company or for investors.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
