The buying stampede for Rite Aid stock continued on Friday, more than a week after the drugstore chain's third-quarter earnings sparked an epic run that has seen shares nearly triple over the last six trading sessions.
XMeanwhile, rivals CVS Health (CVS) and Walgreens Boots Alliance (WBA) were setting up in bases.
Rite Aid (RAD) pared gains sharply to close up 5.8% at 20.30 in the stock market today, after surging as much as 24.4% to hit 23.88. That intraday high is more than triple the closing price of 7.67 on Dec. 17.
Then on Dec. 19, Rite Aid stock soared 42% to 11.84, breaking out of a cup base with a buy point of 11.68, after third-quarter results surpassed expectations. The company also raised its full-fiscal-year per-share profit forecast to 13-55 cents from a prior view of break-even to 56 cents.
Before this explosion, Rite Aid stock had been steadily falling for years and was down 46% in 2019 alone. But now Rite Aid has a strong 92 Composite Rating, according to MarketSmith. Its EPS Rating is 76. IBD encourages investors to look more closely at stocks with Composite Ratings in the 90s.
CVS stock dipped 0.1% to 74.40 Friday, near a 77.13 handle buy point of a cup base. The stock has a strong 97 Composite Rating. Its EPS Rating is 82,
Dow Jones component Walgreens Boots Alliance rose 0.2% to 59.02, working on a flat base with a 64.60 buy point. Shares have a 61 Composite Rating and a 70 EPS Rating.
Short Squeeze For Rite Aid Stock?
Ihor Dusaniwsky, managing director at S3 Partners, a financial analytics and software-as-a-service firm, said over email that the price move for Rite Aid stock was not a short squeeze. Rather, he said, the jump represented a long buying rally.
However, he said, if Rite Aid "continues its rally or its price stabilizes at these levels I would expect a dramatic short squeeze next week as shorts have been hit with both large mark-to-market losses and expensive stock borrow costs."
Short interest in Rite Aid stock stood at $261 million, he said, with 13.62 million shares shorted. That represented around 26% of the stock's tradable shares. The stock borrow fee was 11.79%.
Turnaround To 'Take Some Time'
Last week, Rite Aid cited prescription growth, cost control and "improvements" in generic drug costs as the reasons for its improved fiscal-year financial outlook. A decline in prescription reimbursement rates, it said, tempered that forecast nonetheless.
Gains came from other parts of the sales floor as well. Rite Aid's Thrifty ice cream brand, management said, "was a meaningful contributor" to third-quarter growth.
Those improvements come after a merger deal between Rite Aid and Albertsons fell through last year. Walgreens Boots Alliance also tried, and failed, to buy Rite Aid. Advances by Amazon (AMZN) into the pharmacy industry have also worried investors. A flight toward cheaper generic drugs has also hurt drugstore chains.
In March, Rite Aid announced a big leadership shake-up. The company has said it is also trying to build out its digital customer services, and take steps to allow pharmacists more time to interact with customers.
"The reality is, many of our consumers engage with our pharmacists far more often than they do with their own physicians," Chief Operating Officer Jim Peters said on the company's third-quarter conference call.
However, Heyward Donigan, who became CEO in August, said "it remains clear that this turnaround will take some time." Later in the call, he said that two strong quarters from the company "is not enough."
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