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Rite Aid Stock Is Risky but Could Pay Off

David Moadel

I can almost hear the groans now. Any mention of Rite Aid (NYSE:RAD) stock is sure to elicit eye rolls and sarcasm from the peanut gallery on social media. On one level, I can understand where they’re coming from. This is, after all, a stock that’s slid from $180 to $5 and change, with penny-stock status a real threat in the near term.

Rite Aid Stock Is Risky but Could Pay Off Big-Time

Source: Ken Wolter / Shutterstock.com

If you’ve read my previous InvestorPlace articles, though, you’ll know by now that I eat criticism for breakfast and derision for lunch. In this vein, I’m going to lay out the bullish argument for RAD stock. Just remember to take everything written here with a grain of salt and a truckload of caution, for Ride Aid stock is far from a sure bet.

New CEO Means New Hope for RAD Stock

If any event has indicated a change in direction for this ailing drug store, it’s the departure of Chief Executive Officer John Standley, who is widely blamed for the failure of two attempted mergers as well as the precipitous decline in the RAD stock price. Over the past two years, Rite Aid has sold many of the company’s stores to competitor Walgreens (NASDAQ:WBA).

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Today, the store count for Rite Aid is approximately half of what it was just a couple of years ago. In fact, with just 2,466 stores spread across 18 U.S. states, Rite Aid’s fiscal year 2019 revenues amounted to a comparatively paltry $21 billion.

And so, Standley is now the Jeff Immelt of the drugstore industry. Long-term RAD stock investors are happy to say “good riddance” to the outgoing CEO. Taking his place is renowned healthcare executive Heyward Donigan, who has served as the CEO of ValueOptions and Sapphire Digital and in various executive positions at Cigna (NYSE:CI) and Premera Blue Cross.

Rite Aid Board of Directors Chairman Bruce Bodaken was effusive with accolades for the company’s new CEO:

We are confident that Heyward is the right person to lead the company in capitalizing on the opportunities in the evolving healthcare environment. Heyward’s strong senior executive experience, proven leadership capabilities and consistent track record of driving profitable growth, as well as her broad healthcare knowledge and digital shopping technology expertise set her apart.

Personally, I’m hopeful that much like at General Electric (NYSE:GE), a “draining of the swamp” at the executive level will mark a new chapter in Rite Aid’s rocky history. Granted, shareholders haven’t seen a markup in Rite Aid stock quite yet, but change takes time. And at the current valuation, it’s hard to imagine that there’s much more room for this embattled stock to fall.

The (Delayed) Amazon Effect

Online retail leviathan Amazon (NASDAQ:AMZN) has been known to bestow its Midas touch to struggling companies before, and I’m hoping that it can be Rite Aid’s savior in 2019. When Amazon announced in late June its plan to allow customers to pick up delivered packages at Rite Aid locations, the RAD stock price increased but not for very long, leaving investors wondering whether the Amazon effect would have a lasting positive impact on Rite Aid shares.

In light of the actual terms of the agreement, I would advise shareholders to exercise patience. As has been reported, the package pickup service was to commence at only 100 Rite Aid locations, but is then to be expanded to 1,500 locations by the end of this year. I expect the partnership to drive sales and revenues to Rite Aid as more stores offer the package pickup service.

My Takeaway on Rite Aid Stock

After suffering more capital loss than anyone should experience in the span of a few years, RAD stock investors are ready for the company to turn the corner. Will it happen in 2019? Heaven only knows. Between the swamp draining and the Amazon kick-starter, I’m hoping the market will indeed make Rite Aid great again.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

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