Rite Aid stock crashes 20% after Wall Street analyst suggests retailer could go out of business

Rite Aid’s (RAD) outlook is a hot mess — so hot the company may not be in business much longer.

At least that’s the word from Deutsche Bank analyst George Hill, who issued a damning downgrade of the struggling retailer on Thursday.

Hill slashed his rating on Rite Aid to Sell and slapped the stock with a $1 price target. Most worrisome — at least if one still owns Rite Aid’s stock — is that Hill suggests Rite Aid may go under.

“We see a likely risk that the company provides guidance next week that causes investors to question the company’s ability to sustain itself as a going concern, leading to a sharp reduction in the value of Rite Aid shares,” Hill said.

Shares of Rite Aid were rocked on the scathing critique of the company’s business.

The stock crashed 24% to $6.45 on the session. Shares are now down 50% over the past two years, badly lagging pharmacy rivals CVS Health (+70%) and Walgreens (+1%) — both of which have put up much stronger results as people visited to get COVID-19 vaccines.

A Rite Aid spokesman didn’t return Yahoo Finance’s request for comment on Hill’s analysis.

Hill says Rite Aid — which has a bloated $3.2 billion in debt after years of aggressive expansion that hasn’t panned out — simply may not generate enough cash to stay viable.

A Rite Aid store at 1841 North Western Avenue is shown at in Los Angeles, California, U.S., January 21, 2020. Picture taken January 21, 2020.     REUTERS/Mike Blake

A Rite Aid store at 1841 North Western Avenue is shown at in Los Angeles, California, U.S., January 21, 2020. Picture taken January 21, 2020. REUTERS/Mike Blake

Explained Hill, “The key investor focus will be Rite Aid’s guidance for fiscal 2023, where the company has previously indicated it could generate well in excess of $430mm in EBITDA. This figure is important because Rite Aid needs to generate $190 million to $200 million in cash annually to cover its debt service costs, plus another $200 to $250 million to cover its store maintenance capital expenditure requirement, meaning Rite Aid needs to generate ~$400 to $450 million in annual adjusted EBITDA to continue as an operating company. At a number below $400mm, the equity arguably has no value as the company is not in a position to generate real returns to shareholders. Unfortunately, we believe Covid has hastened the decline of the retail pharmacy segment and we see the potential for a dramatic negative inflection point for Rite Aid shares as this preliminary fiscal 2023 outlook seems to be unattainable.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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