$RAD Hooked On Debt And Opioids
Over the course of the past week, Rite Aid Corporation (NYSE: RAD) ran more than 95% which is why the stock is currently popular among traders seeking to buy meme stock. Having said that, the company is facing a litany of issues that could cause its stock to plummet. A prime example is its legal implications concerning the opioid crisis. Additionally, the company is currently undergoing a heavy restructuring that may result in substantial losses throughout 2024. Keeping these things in mind, bankruptcy may be in the future of the company which makes shorting RAD stock a potentially profitable decision given the company’s financial struggles and the potential lawsuit settlement.
RAD Fundamentals
Due to numerous complications, RAD reported $749.9 million in losses during its 2024 fiscal year. One of the reasons for these losses is the company’s overwhelming expenses which is why the company’s management has been focusing on rightsizing the business to prioritize profitability.
As part of this plan, RAD closed down around 145 stores this past year and is set to cancel Plan D Medicare for individuals starting January 2024. For reference. Plan D provided RAD with $1.2 billion in revenue for Q1 2024 which accounts for roughly 21% of the company’s total quarterly revenue. In the long run, this plan may be wise since plan D revenue has been decreasing substantially over the previous quarters and declined by 30% from Q4 2023 to Q1 2024.
That being said, this plan is sure to substantially decrease the company’s revenue. Moreover, the company does not expect its restructuring plan to instantaneously bear fruit. According to its own estimates, the company is expecting a net loss between $439 million – $466 for its 2024 fiscal year.
At its current pace, RAD is likely to continue closing unprofitable stores in order to minimize its expenses and increase its likelihood of profitability down the line, however, that will likely impact its revenues negatively. The reason is that as RAD shuts down more stores, sales will naturally decrease which in turn means revenue will follow. Another factor to consider is that Plan D Medicare for individuals will be cut in January 2024, which could have a devastating effect on the company’s revenues since Plan D currently makes up 21% of RAD’s revenues.
Since RAD expects a net loss for its 2024 fiscal year, profitability is still ways off which is an extremely bearish indication for RAD Stock. In short, the company’s current turnaround tactic sacrifices short-term interests for a higher likelihood of long-term profitability, which is why going long on RAD stock under its current circumstances could prove to be disastrous.
Debt
Like most plans out there RAD’s current turnaround plan has a chance of working out, however, it is filled with holes. One of its biggest holes is the company’s mounting long-term debt, which is compounded by its insufficient cash balance. The company’s current cash balance is only $135.5 million which is insufficient since it currently has $3.3 billion in long-term debt. This debt is partially comprised of $320 million due in July 2025 and $849.9 million that is due in November 2026. Given the fact that the company is not expecting to make a net profit in 2024, RAD will have to generate $320 million in a few months to pay its July 2025 debt. This may be difficult for the company since its restructuring plan is leaving it with significantly fewer stores than it originally had.
RAD’s Opioid Problem
In March 2023, the U.S. government filed a lawsuit against RAD, accusing it of missing red flags and filling hundreds of thousands of prescriptions for controlled substances – including opioids. This ongoing case could potentially be a finishing blow for the company considering the fact that many other pharmaceutical companies have recently settled similar cases for billions of dollars. CVS Health Corporation (NASDAQ: CVS) for example reached a $5 billion multistate settlement, and for Walgreens Boots Alliance, Inc. (NASDAQ: WBA) that figure was around $5.7 billion. If the settlement amount is even remotely similar to these figures then that will place RAD in significant financial strain, and as a result, the company may not be able to pay its debt.
Endo International plc (OTC: ENDPQ) and Mallinckrodt plc (NYSE: MNK) are two extremely notable pharmaceutical companies that went bankrupt as a result of opioid crisis-related lawsuits. When both of these companies filed for bankruptcy they were in a better financial situation than RAD.
First and foremost, both companies were generating cash from operations, on the other hand, RAD is currently losing cash from its operations. Additionally, MNK had a cash balance of $818 million, which dwarfs RAD’s cash balance which is currently at $135.5 million. It is also worth noting that its cash balance is likely to continue being chipped away as the lawsuit progresses due to the company’s net losses and debt.
Basically, as the lawsuit commences, RAD is likely going to be worse for wear. In summary, these two companies were faring marginally better than RAD from a fiscal standpoint, and yet they filed for bankruptcy due to the fiscal strain they experienced due to their settlements. It is for this reason that RAD’s lawsuit is likely to result in bankruptcy.
Risks
As things stand, shorting RAD stock comes with its risks as the stock is a prime short squeeze candidate. Currently, the stock has a short interest of 21.4% and 29.3% of its float on loan. In light of its short data, investors shorting the stock should set stop losses to mitigate any potential losses from short squeezes in the future.
RAD Financials
According to RAD’s Q1 2023 report, its assets increased QoQ from $7.5 billion to $7.6 billion partially due to an increase in goodwill and inventory. Having said that, its cash balance decreased from $157 million to $135 million likely due to the fact that the company’s expenses are chipping away at its cash balance as a result of its net loss.
When it comes to liabilities, the company witnessed a QoQ increase from $8.15 billion to $8.59 billion. This increase is due to its long-term debt which increased from $2.9 billion to $3.3 billion which could be attributed to a $400 million withdrawal from its revolving facility.
In terms of revenue, RAD experienced a YOY decrease from $6 billion to $5.6 billion which is likely due to the company closing down several stores as a result of its restructuring plan. On the other hand, its expenses decreased from $6.01 billion to $5.72 billion as a result of the company’s efforts. Despite that decrease in expenses, the company’s net loss increased from $110 million to $306 million due to its waning revenues.
Technical Analysis
RAD stock recently exited a bearish trend and is currently in a neutral trend with the stock trading in a sideways channel between $1.51, and $2.01. Looking at the indicators, the stock is currently trading above the 50 and 21 MAs which is a bullish sign, and is below the 200 MA which is a bearish indication. Meanwhile, the RSI is neutral at 61 and the MACD recently turned bearish.
Despite the stock’s current bullish momentum, its fundamentals are riddled with bearish indications. Currently RAD is in the midst of a restructuring plan that is not likely to bear fruit until after its 2024 fiscal year. Additionally, the company has mounting debt and an opioid lawsuit on its heels. With the stock trading near support, a possible play could be to go short on the break of the support and take profits on retests of the 50 MA and the $1.5 support, with a stop loss at $2.8 if the stock bounces from the support.
RAD Forecast
At first, RAD stock may seem like an opportune investment due to its recent meteoric rise, however, that may not last long due to a litany of issues. These issues include a slow-paced reorganization plan that will decrease the company’s revenue, profitability issues, mounting long-term debt, and an opioid crisis lawsuit that could lead the company into bankruptcy. For these reasons, shorting RAD stock may prove to be a profitable decision in the long term following its recent run.
RAD Fundamentals
Due to numerous complications, RAD reported $749.9 million in losses during its 2024 fiscal year. One of the reasons for these losses is the company’s overwhelming expenses which is why the company’s management has been focusing on rightsizing the business to prioritize profitability.
As part of this plan, RAD closed down around 145 stores this past year and is set to cancel Plan D Medicare for individuals starting January 2024. For reference. Plan D provided RAD with $1.2 billion in revenue for Q1 2024 which accounts for roughly 21% of the company’s total quarterly revenue. In the long run, this plan may be wise since plan D revenue has been decreasing substantially over the previous quarters and declined by 30% from Q4 2023 to Q1 2024.
That being said, this plan is sure to substantially decrease the company’s revenue. Moreover, the company does not expect its restructuring plan to instantaneously bear fruit. According to its own estimates, the company is expecting a net loss between $439 million – $466 for its 2024 fiscal year.
At its current pace, RAD is likely to continue closing unprofitable stores in order to minimize its expenses and increase its likelihood of profitability down the line, however, that will likely impact its revenues negatively. The reason is that as RAD shuts down more stores, sales will naturally decrease which in turn means revenue will follow. Another factor to consider is that Plan D Medicare for individuals will be cut in January 2024, which could have a devastating effect on the company’s revenues since Plan D currently makes up 21% of RAD’s revenues.
Since RAD expects a net loss for its 2024 fiscal year, profitability is still ways off which is an extremely bearish indication for RAD Stock. In short, the company’s current turnaround tactic sacrifices short-term interests for a higher likelihood of long-term profitability, which is why going long on RAD stock under its current circumstances could prove to be disastrous.
Debt
Like most plans out there RAD’s current turnaround plan has a chance of working out, however, it is filled with holes. One of its biggest holes is the company’s mounting long-term debt, which is compounded by its insufficient cash balance. The company’s current cash balance is only $135.5 million which is insufficient since it currently has $3.3 billion in long-term debt. This debt is partially comprised of $320 million due in July 2025 and $849.9 million that is due in November 2026. Given the fact that the company is not expecting to make a net profit in 2024, RAD will have to generate $320 million in a few months to pay its July 2025 debt. This may be difficult for the company since its restructuring plan is leaving it with significantly fewer stores than it originally had.
RAD’s Opioid Problem
In March 2023, the U.S. government filed a lawsuit against RAD, accusing it of missing red flags and filling hundreds of thousands of prescriptions for controlled substances – including opioids. This ongoing case could potentially be a finishing blow for the company considering the fact that many other pharmaceutical companies have recently settled similar cases for billions of dollars. CVS Health Corporation (NASDAQ: CVS) for example reached a $5 billion multistate settlement, and for Walgreens Boots Alliance, Inc. (NASDAQ: WBA) that figure was around $5.7 billion. If the settlement amount is even remotely similar to these figures then that will place RAD in significant financial strain, and as a result, the company may not be able to pay its debt.
Endo International plc (OTC: ENDPQ) and Mallinckrodt plc (NYSE: MNK) are two extremely notable pharmaceutical companies that went bankrupt as a result of opioid crisis-related lawsuits. When both of these companies filed for bankruptcy they were in a better financial situation than RAD.
First and foremost, both companies were generating cash from operations, on the other hand, RAD is currently losing cash from its operations. Additionally, MNK had a cash balance of $818 million, which dwarfs RAD’s cash balance which is currently at $135.5 million. It is also worth noting that its cash balance is likely to continue being chipped away as the lawsuit progresses due to the company’s net losses and debt.
Basically, as the lawsuit commences, RAD is likely going to be worse for wear. In summary, these two companies were faring marginally better than RAD from a fiscal standpoint, and yet they filed for bankruptcy due to the fiscal strain they experienced due to their settlements. It is for this reason that RAD’s lawsuit is likely to result in bankruptcy.
Risks
As things stand, shorting RAD stock comes with its risks as the stock is a prime short squeeze candidate. Currently, the stock has a short interest of 21.4% and 29.3% of its float on loan. In light of its short data, investors shorting the stock should set stop losses to mitigate any potential losses from short squeezes in the future.
RAD Financials
According to RAD’s Q1 2023 report, its assets increased QoQ from $7.5 billion to $7.6 billion partially due to an increase in goodwill and inventory. Having said that, its cash balance decreased from $157 million to $135 million likely due to the fact that the company’s expenses are chipping away at its cash balance as a result of its net loss.
When it comes to liabilities, the company witnessed a QoQ increase from $8.15 billion to $8.59 billion. This increase is due to its long-term debt which increased from $2.9 billion to $3.3 billion which could be attributed to a $400 million withdrawal from its revolving facility.
In terms of revenue, RAD experienced a YOY decrease from $6 billion to $5.6 billion which is likely due to the company closing down several stores as a result of its restructuring plan. On the other hand, its expenses decreased from $6.01 billion to $5.72 billion as a result of the company’s efforts. Despite that decrease in expenses, the company’s net loss increased from $110 million to $306 million due to its waning revenues.
Technical Analysis
RAD stock recently exited a bearish trend and is currently in a neutral trend with the stock trading in a sideways channel between $1.51, and $2.01. Looking at the indicators, the stock is currently trading above the 50 and 21 MAs which is a bullish sign, and is below the 200 MA which is a bearish indication. Meanwhile, the RSI is neutral at 61 and the MACD recently turned bearish.
Despite the stock’s current bullish momentum, its fundamentals are riddled with bearish indications. Currently RAD is in the midst of a restructuring plan that is not likely to bear fruit until after its 2024 fiscal year. Additionally, the company has mounting debt and an opioid lawsuit on its heels. With the stock trading near support, a possible play could be to go short on the break of the support and take profits on retests of the 50 MA and the $1.5 support, with a stop loss at $2.8 if the stock bounces from the support.
RAD Forecast
At first, RAD stock may seem like an opportune investment due to its recent meteoric rise, however, that may not last long due to a litany of issues. These issues include a slow-paced reorganization plan that will decrease the company’s revenue, profitability issues, mounting long-term debt, and an opioid crisis lawsuit that could lead the company into bankruptcy. For these reasons, shorting RAD stock may prove to be a profitable decision in the long term following its recent run.
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