Not a very RAD stock: Rite Aid Earnings Play (Puts)

Disclaimer: This is not financial advice and is my first attempt at a DD. If you want to tear it apart, I’d actually appreciate it. This is an area I feel I have been lacking in and I want to improve as a trader. If anyone with experience decides to read this, please let me know (in PM or by thread reply, either dialogue is great) what I’m missing, what you liked, what can be improved, etc.

  • What do they do? Rite Aid is a national drugstore/pharmacy across the United States. They carry a variety of OTC and Prescription drugs as well as a modest grocery section. They have horrendously shitty t-shirts.

  • How do they make money? Selling drugs. Legally. Along with the aforementioned food, groceries, healthcare products provided through wholesale partnerships. Some of their recent financials will make you wonder if they’ve been giving those things away for free.

  • Why are they important? Local, conveniently placed locations for prescription and OTC medications. Relatively cheap groceries. They provide flu vaccinations, but have expanded that to include COVID-19 shots in light of the ongoing pandemic.

  • What are their products? Most of what they stock through wholesale arrangements for brand-name OTC medications and household products. They also carry Rite-Aid Pharmacy brand drugs and supplies with their terrible logo plastered all over the packaging.


The last few EPS reports for RAD have dipped back and forth but, with the exception of the Q4 21, Rite Aid has actually exceeded EPS expectations every time. The Q3 22 report is the upcoming report, in which they are expected to have an EPS of –0.14. Rite Aid has consistently crushed EBIT expectations. Net Income has generally been a beat. Shaky beats, though and of low expectations. This might seem like a bullish case. But we’re going to fix that in a second. Their YoY changes look like shit. I won’t say Rite-Aid is tanking, but it has suffered immensely; Their Q2 2022 Net Income YoY is –660%. YoY helps predict growth and that’s a big, BIG shrink.

RAD is getting beat on the digital side too despite all of their spending. Elixir, a PBM (pharmacy benefit manager) under Rite Aid and an important piece of their expansion into a more digital approach, DID NOT do so well in a Q2 2022 report in September of this year. It showed a net loss of $100 million from continuing operations and a decrease in memberships for Elixir Insurance and the PBM platform overall. Being a small company can work if you’re fast and thinking ahead, but their online PBM flunked and their use of Uber to move product isn’t unique. Worse, CVS is the one getting all of the attention for going digital AND they have a 60% Debt to Asset Ratio compared to RAD’s 94%. Small, slow and inflexible? I don’t like it.

The company has an EXPECTED earnings report coming on 12/16/21. I know how much we LOVE (to hate) earnings plays. I mentioned before that RAD consistently beat low expectations, sometimes with startling conviction, but their last beat was not that impressive and it only looks to get worse.

Recent news regarding COVID-19 may also be seen as a bull case to drugstores in general. With the emphasis on distribution, and recent news regarding spikes in Covid cases, companies like Rite-Aid could find themselves in a position to continue benefiting from the current pandemic climate. If the anti-viral PFE pills receive their emergency approval, this could have a trickle-down positive effect to the companies that are already offering boosters.

Rite-Aid actually released a statement and turned bullish news bearish for them. “Due to the current supply of 10 microgram doses, only select Rite Aid locations will be offering appointments.” Compare this to CVS, who has almost four times the number of available locations (over 9000 locations compared to Rite-Aid’s roughly 2500). Who do you think is going to get priority for distributing these medications? CVS and Walgreens have 18,000 stores between the two of them. They have a larger distribution network and better infrastructure to receive and utilize vaccines. Even with recent small competitor acquisitions in 2020, Rite-Aid is simply not in as good of a position to take advantage of this environment.


Compare the performance of RAD to CVS and WBA:

Here’s RAD:



What stands out? RAD is anything but rad.

Positioning and Value:

This stock is considered overvalued even at its low price. Recent areas of support look to be between 12.72 and 12.75. On another light beat or meeting expectations, I’m still expecting a knife under 12. With a bad miss, we could be looking at 11.5 or below. With exceptionally bad financials, it could fall back to historical lows around 9$. I should say that it absolute worst case for RAD (but best case for bears). Volume for RAD is fairly low at 1M shares daily, but tends to spike up to about 3-6M around earnings dates.

I have to wait for some BP to clear and would like to get some sort of confirmation on their official earnings date, but my own position will be Dec 31 with 12.5 puts. I would be very surprised if they don’t report by 12/23, as EW and other financial sites have put the estimate between 12/16 and 12/23 based on algos. As stated in the disclaimer, this is my first DD so I HIGHLY SUGGEST you look at this one on your own before you consider taking a position. Whether you do or don’t, good luck with your trades and remember to take profits.

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Honestly it seems like RAD is sabotaging themselves at this point and their leadership seems incompetent. Very insteresting read and perspective. Looks like RAD might be primed for another dump.

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