Is Rite Aid At Its Lowest?

Another week, another five-year low for Rite Aid (NYSE:RAD) investors. Shares of the meandering drugstore operator plummeted another 10% last week, but the entire hit came during first two trading days of last week. Rite Aid has closed at exactly $1.15 for four consecutive trading days. It’s a coincidence, sure, but also a sign of potential stability.

The slide at Rite Aid came to at least a temporary pause early last week after the chain announced the ratification of a three-year deal with the United Food and Commercial Workers union. The pact covers 5,900 associates across 357 stores in Southern California. The new contract keeps the union workers’ healthcare plan in place, a major pressure point in the negotiations. The union is also conceding workplace efficiency measures that will help Rite Aid deliver the agreement’s wage increases. The resolution is a pretty big deal. The union had called for a boycott on Rite Aid early last month.

Fixing a broken clock

The rough week didn’t wrap up harmoniously on all union fronts. The International Brotherhood of Teamsters were calling for Rite Aid shareholders to take a stand on upcoming “Say on Pay” proposals late last week, rejecting executive payouts resulting from the two failed buyout attempts. The Teamsters union has a large stake in Rite Aid through its member pension and benefit funds, giving it a vocal platform to voice its displeasure in the drugstore operator’s CEO grabbing a $3 million bonus when the Albertsons deal fell apart this summer.

It bears pointing out that it’s not exactly Rite Aid executives and its board to blame for either deal falling apart. Antitrust regulators clamped down on the initial buyout, forcing Rite Aid into settling for selling only a chunk of its stores in a $4.375 billion asset sale. The Albertsons deal came undone as several institutional and retail investors made it clear that they would be voting against the corporate combination with the supermarket giant.

Rite Aid shares have fallen by nearly 40% since the Albertsons deal unbuckled two months ago. It’s fair to say that Rite Aid stock would be trading well above current prices if the deal had gone through, but there’s no joy in getting the last laugh when all shareholders are feeling the pinch

It’s not easy being a drugstore operator these days. Volume is moving away from the traditional pharmacy chains, online threats are emerging, and challenging reimbursement rates have been eating at the industry’s margins. The good news for Rite Aid investors with the shares at five-year lows is that things are getting better. Analysts see Rite Aid returning to positive earnings next year. Organic growth is gradually recovering. The stock seems to have found a bottom around here, and now it’s up to Rite Aid to claw its way back out.