There can never be a worse time to report quarterly results. Rite Aid (RAD) shares last week fell below $1, the lowest level in the past seven years. The shares have lost half its value in the past 52 weeks alone after Rite Aid investors killed the proposed merger deal with Albertsons claiming the agreement wasn’t good enough.
As the drugstore chain reports third-quarter results after the market closes on Wednesday, the company will be hoping to turn the table with some positive numbers. Analysts expect the company to post a loss of 1 cent per share on a revenue of $5.48 billion during the third quarter.
Rite Aid’s past few quarterly reports haven’t been highly inspiring. In the trailing five quarters, the company has missed revenue consensus four times, primarily hurt by the headwinds in the generic drug market. Meanwhile, the bottom line has been negatively impacted by numerous impairment charges relating to the bidding activity.
In light of these rising one-off charges, the management had last quarter raised its 2019 net loss guidance to $440-$485 million from the prior estimate of $125-$170 million. Adjusted EBITDA for this period is now expected between $540 million and $590 million.
However, even setting aside the one-time costs, Rite Aid hardly looks like a profitable investment as the company is plagued by stagnant growth prospects and rising long-term obligations. The company currently has $3.5 billion in long-term debt, following the 2015 purchase of EnvisionRx for $2 billion.
Though EnvisionRx has been reasonably profitable, it has not bee able to contribute enough to pay off these obligations. Unless the segment contributes $25 million per quarter, it would make more sense to sell this stake. Rite Aid might also need to raise more capital – or perhaps look for a buyer once more – to steady the ship.
Look out for any forward-looking signals from the management during the earnings conference call.
The stock has a 12-month average price target of $1.18, which is at a 40% upside from the current stock price. It has an average rating of Moderate Sell.