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RAD – Market expectations are for Uniform ROA expansion, but management may have concerns about omnichannel engagement, store remodeling, and the cold and flu business

February 24, 2021

  • Rite Aid Corporation (RAD:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 24.3x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may have concerns about their omnichannel capabilities, store remodeling costs, and weak flu and cold volumes
  • Specifically, management may lack confidence in their ability to mitigate drug cost-driven adjusted EBITDA declines, sustain retail pharmacy market share gains, and grow their specialty pharmacy business. Furthermore, they may be exaggerating the long-term potential of COVID-19 vaccines and the recovery of acute prescriptions, and they may be downplaying concerns about the impact of weak cough, cold, and flu volumes. Moreover, management may lack confidence in their ability to drive omnichannel member engagement and profitability with Elixir, and they may also be concerned about store remodeling costs and their current financial leverage