Novice Investing - Doing The Rite Thing for Rite Aid

Date: Monday 01st 2008f December 2008 05:26:33 PM

Doing The Rite Thing for Rite Aid - 06/28/2007

By: Hari Wibowo

Back in August 2006, Rite Aid (RAD) decided to acquire Jean Coutu Group for 250 Million in stock and $ 1.45 Billion in cash. Since Rite Aid did not have that much money in the balance sheet, we presumed the deal would be financed by debt. Debt that stood at $ 2.46 Billion previously would have soared to $ 4.0 Billion. The latest count on Rite Aid's balance sheet shows that the company has $ 3.1 Billion in long term debt. Cash on hand meanwhile stood at $ 106.4 Million, roughly equivalent to three days of sales.

It is still a puzzle to us but let's take a look at Rite Aid's latest earning report. For the fiscal 1st Quarter, Rite Aid earned 4 cents per share or $ 27.6 Million, versus a penny a share loss expected by analysts. Revenue rose to $ 4.46 Billion with same store sales rising 2.3%. Going forward, Rite Aid expects revenue for the full year to range between $ 25.3 - $ 26 Billion with same store sales rising 3.8% at the very least.

While this sounds good for the debt laden company, Rite Aid is expected to post a loss of 14 cents or $ 90 Million due to stores integration from its Jean Coutu acquisition. Also, with long term debt now topping $ 3.1 Billion, Rite Aid annual interest expense is projected to be $ 186 Million. Meanwhile, shares of Rite Aid has risen to $ 6.20 per share, close to its 52 week high on optimism of improving result. We suggest reader not to get too excited by the share price movement but rather, look into the financial result.

Would you rather pay 30 times 2009 projected earnings of a debt laden company like Rite Aid? Or paying less than 10 times earning for cash-rich company like Komag? If you would like to look at what companies we like, you can browse around our portfolio section and see how we identify good companies.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Rite Aid Corp. (RAD) or any other securities.

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