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Unlike Walgreens (NYSE:WBA) or CVS Health (NYSE:CVS), Rite Aid (NYSE:RAD) is on a permanent downtrend. The company hired a new CEO last month but that did not do much to restore confidence. It will take more efforts to turnaround the company, which would then help lift the RAD stock price.
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Last month, Rite Aid appointed Heyward Donigan as its next CEO. She has 30 years in experience and all aspects of the healthcare industry. She was previously the CEO of Sapphire Digital, a firm that matches healthcare providers for consumers. Overall, her experience in digital channels, building consumer engagement, and leading companies to record growth are all skills that Rite Aid needs.
Rite Aid Falling Behind Competition
CVS shares held the $53 bottom and traded recently at $64. The stock rebounded because its second-quarter 2019 results exceeded the high end of its guidance range. CVS earned $1.89, 17 cents higher than its range, helped by its Retail/LTC and Pharmacy Services division. Similarly, Walgreens reported an EPS of $1.47 (non-GAAP) after revenue grew 0.8% to $34.59 billion. WBA stock also pays a dividend that yields 3.3%.
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Rite Aid reported Q1 results that lagged estimates. It lost 14 cents a share, compared to a two-cent profit the year before. Revenue slipped slightly to $5.37 billion. If Rite Aid did not have a $58 million interest expense and a $43.5 million restructuring-related charge, it could have earned a small profit.
Headwinds Holding Back RAD Stock
Rite Aid’s poor Q1 performance is due to a many factors. Gross profits fell primarily due to reimbursement rate pressure. It was unable to offset the drop with generic drug purchasing efficiencies and increasing volumes or prescription fills at stores.
The new CEO will need to firm up the management team to deliver on higher comparable same-store sales. Prescription volumes need to increase every sequential quarter. If this happens, the stock could start attracting buyers. For now, the $421 million market cap reflects the high uncertainties ahead in the business. Investors are unwilling to bid the stock higher until the company stops reporting poor operational performance.
Fixing the Business
As hard as it is to believe, Rite Aid may potentially report improving EBITDA. As it implements its cost-savings program and finishes its generic bidding activity, it will benefit from lower operating costs. Its EnvisionRxOptions faced margin compression in the quarter. But this will be offset by stronger growth in Medicare Part D revenue. The current 2020 commercial selling season should give revenue a lift.