Novice Investing - Healing Rite Aid

Date: Thursday 02nd 2010f September 2010 12:12:38 PM

Healing Rite Aid - 05/21/2009

By: Hari Wibowo

		Rite Aid Corporation. 30 Hunter Lane Camp Hill, PA 17011 United States

When we last wrote about Rite Aid Corp. (RAD) back in October 2008, the credit market was in upheaval after recent bankruptcy of Lehman Brothers. In retrospect, Lehman is a company too big to fail and its bankruptcy. With credit hard to get, we disfavored Rite Aid as the company was heavily indebted with $ 6.1 Billion in long term debt against $ 170 Million cash on hand. Shares fell to as low as $ 0.20 per share, indicating a high probability of bankruptcy filling.

Lately, Rite Aid Shares has been trading up to $ 1 per share, mainly as a result of a positive same store sales of 1.8% during April 2009. This is quite in sync with other economic indicators that point to stabilization of the US economy. Furthermore, the threat of swine flu has helped to increase sales of masks and other flu related vaccines.

Despite the recent share rise to $ 1 per share, we feel that Rite Aid is still in peril of falling into bankruptcy protection. As of 28th February 2009, Rite Aid still has plenty of debt to shave. It has $ 5.97 Billion of long term debt against $ 152 Million of cash on hand, roughly similar to its October 2008 level. For the fiscal year ending on February 2009, Rite Aid achieved $ 586 Million in EBIDTA. That is significantly less than its $ 800 Million prediction late last year and it is falling dangerously low to service its interest rate payment of $ 350 Million per year.

Further, for fiscal year 2010, Rite Aid is still expected to lose $ 0.42 per share or $ 372.3 Million. Excluding any non-recurring charge and assuming a $ 586 Million in depreciation amortization expense, $ 477 Million in interest expense, this points to $ 691 Million in EBIDTA. This is an improvement from 2009 fiscal year but yet, it is still lower than Rite Aid's October 2008 prediction.

Overall, the improvement in credit market and the rise of Rite Aid's same store sales has reduced the risk of bankruptcy. However, share price has already risen in tandem with this improved performance. Bear in mind that Rite Aid's survival currently still as doubtful as it was back in October 2008. Thus, at current situation, we would think that it is best if you avoid Rite Aid shares as potential investment.

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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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