Rite Aid CorporationRAD

Morningstar Rating

Stock Research and Analysis

by Matthew Coffina

We doubt Rite Aid can generate enough cash flow over the long run to have anything left for shareholders after covering its significant debt obligations. Its precarious financial position and underperforming store base make the company ill-equipped Read more

Bulls Say

Rite Aid benefits from some secular tail winds, such as health-care spending growth, the aging U.S. population, and the wave of brand-name drugs losing patent protection in coming years.

If Rite Aid is successful in its turnaround efforts, its stores may realize currently untapped potential and close the productivity gap with competitors.

Rite Aid successfully refinanced its near-term debt maturities, indicating that it still has access to capital markets and granting it time to improve its operations. Read more

Bears Say

Rite Aid's fundamental problem is a store base that is much less productive than that of competitors. We are skeptical that efforts like improved merchandising can rectify this situation.

Rite Aid's debt obligations are likely to consume most or all of its cash flow. Recent refinancing will increase its interest expense, which already handily exceeds operating income.

Rite Aid's competitors have been getting increasingly aggressive with their promotions. Examples include Wal-Mart's $4 generics program and Walgreen's and CVS' offer of 90-day scripts at retail. Read more

Strategy

Rite Aid acquired more than 1,800 Brooks and Eckerd stores in an effort to increase its scale and remain competitive with larger rivals. Although the size of its store base is approaching that of Walgreen Read more

Management

We have concerns about Rite Aid's stewardship. Following the Brooks/Eckerd acquisition, the Jean Coutu Group retains 28% of Rite Aid's outstanding stock and controls four board seats, which could compromise the interests of minority shareholders. A Read more

Profile

Rite Aid is the third-largest retail pharmacy chain in the United States, with about 4,900 stores spread across 31 states and the District of Columbia. Prescription drugs Read more

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