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Rite Time to Buy Rite Aid?

Bottom Feeder

Hypophthalmichthys molitrix
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#1
Long-term investors in Rite Aid (RAD) have every right to be cynical that management can turn around the company and its shares after a decade of highs and lows, turnarounds and fumbles and acquisitions and divestitures. After losing more than $4 billion between 1999 and 2003 and doubling its share count, management took on another $2.3 billion in debt and put itself in the position of not being able to make interest payments with operating earnings.

The company lost another $4 billion between 2008-2012 until operating income significantly improved in 2013 and beyond. As the company's operating profitability soared, shares increased from $1 in 2012 to nearly $9 in 2015.

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In October 2015 Walgreens agreed to acquire the company for $9 per share.

The Federal Trade Commission would drag their feet over the next twenty months, causing volatility for shareholders, a reduction in the purchase price from 9 to 6.50-7.00 in early 2017 and the ultimate decision for Walgreens to significantly scale back the purchase to less than half of the stores

20 months after the purchase of Rite Aid by Walgreens was announced, it was cancelled. Rite Aid shares dropped to less than half of their value before the acquisition was originally announced.

The company should be able to claim a tangible book value of between $2.8-3.3 billion or $2.67-3.05 per share, the range that the shares are currently trading at

The company is also likely suffering from a perception that Amazon will infiltrate and disrupt every store-front business, including pharmacy.

All things being considered, today's price of roughly $2.70 per share looks to offer an attractive entry point for investors. Rite Aid management will have to work hard both to shore up the company's retail operations and to increase shareholder confidence. But at the current price, it looks like a fair deal of pessimism is already baked into shares.

BF