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Rite Aid stock plunges to 9-year low

Rite Aid (RAD) stock plunged to 9-year lowest of $0.61 on Thursday. Investors remained concerned on the future of the drugstore chain as they were unsatisfied with the recent third-quarter results. Traders have believed the stock to be a good investment and the current levels called for a buy.

However, the majority of the analysts recommended a “hold” rating on the stock. Wall Street analysts covering the stock expect it to reach $1.02 in the next 52 weeks. They tend to value the company much more than the present scenario as Rite Aid and McKesson (MCK) agreed to key terms that will continue the companies’ pharmaceutical sourcing and distribution partnership for an additional 10 years.

In the recent third quarter, the company’s results slipped to a loss from a profit last year, due to lower discontinued operations. Adjusted earnings jumped 73% on the progress of growing retail and pharmacy benefits management businesses.

The company benefited from the success of its immunization business and other clinical pharmacy services that aided in the strongest prescription count performance in over two years. Revenue in the Pharmacy Services segment grew by 5.6%, driven by growth in its Medicare Part D membership.

The number of prescriptions filled in same stores increased 2.4% on strong results from immunizations and other initiatives to drive script growth. Prescription sales from continuing operations accounted for 67.6% of total drugstore sales.

For the full year 2019, the company had expected total revenue in the range of $21.8 billion to $21.95 billion and same-store sales growth of 0.5% to 1% over fiscal 2018. Adjusted net loss was predicted to be $33 million to $14 million or $0.03 to $0.01 per share. Capital expenditures were anticipated to be about $250 million.

Analysts expect the company to report breakeven per share on revenue of $5.54 billion for the fourth quarter, and a loss of $0.02 per share on revenue of $21.81 billion for fiscal 2019. They fear the debt might exceed the company’s repaying capacity.

The market experts believe that the company could show signs of improvement this year after two years of falling same-store sales. This could create value for the shareholders if improvement trends persist but a lot of risks could give a long and hard road for investors.

The company has suffered from declining margins due to lower comps, the closure or sale of certain locations and costly industry trends. In addition, competition has been rising from online companies including Amazon (AMZN), CVS Health (CVS), and Walgreens Boots Alliance (WBA). The companies could give a stiff competition for Rite Aid to survive in the drugstore industry.

Traders predict that increasing same-store sales and positive free cash flow could turn the company into offering attractive prospects in the long run. Rite Aid could survive helped by growing cash flow caused by rising comparable store sales. However, the road could be tough as competition in this space invariably grows.

Shares of Rite Aid opened higher on Thursday but changed course to the red territory. The stock has fallen over 68% in the year so far and over 51% in the past three months.

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