Why Rite Aid Stock Is Rebounding Today | The Motley Fool

What happened

Shares of Rite Aid ( RAD 2.88% ) had plunged 49% as of the market close on Wednesday. However, the pharmacy stock was rebounding by 5.3% as of 11 a.m. ET on Thursday and had risen as much as 21.5% earlier in the day. Investors cheered Rite Aid’s fourth-quarter update, which was announced before the market opened.

Rite Aid reported fourth-quarter revenue of $6.07 billion, up 2.5% year over year. This result beat the consensus estimate of $5.95 billion. The company posted a net loss in Q4 of $389.1 million, or $7.18 per share. The average analysts’ estimate was for a net loss of $0.56 per share.

It wasn’t those results, though, that caused investors to celebrate. The optimism stemmed instead from Rite Aid’s fiscal 2023 guidance. The company expects revenue of between $23.1 billion and $23.5 billion. It anticipates a net loss for the year of between $167 million and $210 million. Rite Aid also projected adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in fiscal 2023 of $460 million to $500 million.

So what

Only one week ago, Deutsche Bank analyst George Hill cut his price target on Rite Aid stock from $16 to $1. Hill also wrote to investors that the company could even face challenges in continuing to operate. That prediction seems to be way too pessimistic based on Rite Aid’s outlook. 

Image source: Getty Images.

To be sure, Rite Aid must continue to deal with big problems. Its Elixir pharmacy benefits management business is struggling. The company also expects lower revenue related to COVID-19 vaccinations. But Rite Aid thinks its customer loyalty program, private brands, and cost-reduction program should enable it to deliver a better-than-expected performance in fiscal 2023.

Now what

Rite Aid remains a work in progress. Most investors are probably better off staying on the sidelines with this stock. However, the company’s guidance underscores that it’s too soon to write off Rite Aid.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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