What a day it’s been for shareholders in Rite Aid (NYSE:RAD). Shares of RAD stock sank more than 50% in today’s session as investors priced in some rather bleak news.
Reportedly, the pharmacy chain is preparing to file for bankruptcy at some point in the coming weeks. This move appears to be necessary, given the litany of lawsuits that have been filed against the Philadelphia-based chain, as well as the company’s massive debt load.
Rite Aid has warned for some time that its cash flow may be insufficient to pay its debt obligations. It has around $3.3 billion on the books right now. With last quarter’s net loss surging to more than $300 million, and its revenue on the decline, this isn’t a business that’s in great shape right now. Thus, the hundreds of lawsuits filed against Rite Aid at the federal and state levels complicate matters. It appears bankruptcy may be the best way for the company to address these claims, as well as its debt load, right now.
Let’s dive into what investors may want to make of this news and today’s move in Rite Aid.
RAD Stock Plunges as Investors Prepare for Worst
Of course, bankruptcy typically requires that lenders take a haircut on the debt they’re owed, and shareholders get wiped out. Thus, today’s plunge in RAD stock to around 75 cents at the time of writing certainly suggests investors believe such a situation could be plausible.
The lawsuits levied against Rite Aid are serious. They put forward a range of allegations, which suggest Rite Aid aided and abetted the opioid crisis, essentially allowing for controlled substances to be dispensed illegally. Of course, Rite Aid has denied these allegations, but with the heat on other major pharma players such as Purdue Pharma, it’s not a great time to be embroiled in such issues from a public relations standpoint.
Rite Aid has struggled to compete with larger pharmacy chains. It has also been passed over in various merger talks in the past. It appears this company may be in dire straights, given the competitive landscape in this sector and the company’s financial and legal burdens. We’ll have to see how everything plays out, but today’s move in RAD stock certainly makes sense in this regard.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
