Shares of Rite Aid (NYSE: RAD) are starting to build a bottom and a base at the $1.50 to $2.00 range. The drug store is getting closer to Walgreens (NASDAQ: WBA) buying some of its stores. This will give the company the much-needed cash infusion to reduce its debt, restructure the broken business locations and turn the company around.
On November 27, ‘Rite Aid Announces First Closings of Asset Sale to Walgreens Boots Alliance.’ WBA will buy 1,932 stores, three distribution centers and Rite Aid Inventory for $4.375 billion. Rite Aid has a debt/equity of 9.74 times. Its stock is valued at around 2.7 times book but its P/FCF is a paltry 4.7 times.
Management may now apply some of the cash to par its debt. It may also invest strategically in its better-performing locations why closing weak stores. With Fred’s, Inc. (NASDAQ: FRED) reporting weak results but Walgreens rebounding on the markets, chances are good that RAD stock may bounce back too.
This suggests that the stock could trade at a low of $2.00 and move up from there. If management accelerates its store restructuring, the stock will outperform markets sooner. Having a smaller portfolio of stores will help the team accomplish that task.
