Rite Aid Stock Has a Lot to Prove on Thursday

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If Rite Aid (NYSE: RAD) investors have their way, the drugstore operator's upcoming financial report will be its final quarterly announcement as an independent public company. Walgreens Boots Alliance (NASDAQ: WBA) has a deal in place to acquire the company, and if it's able to close ahead of next month's expiration, it will be a meaty premium to where Rite Aid is now.

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Unfortunately, there is no free lunch on Wall Street. Rite Aid's trading at a steep discount to Walgreens' buyout price because the market sees little chance in the acquisition actually taking place. Antitrust regulators have been sitting on this since late 2015, and they've been hesitant to clear the combination even with Rite Aid agreeing to unload hundreds of locations. Thursday's quarterly report isn't likely to be Rite Aid's last filing. It will only be the next one.

Calling in sick

Rite Aid isn't at its best these days. Analysts see the chain posting a net loss of $0.01 a share, reversing a modest profit a year earlier. If Wall Street pros are correct, it will be Rite Aid's first adjusted net deficit in nearly five years. Analysts are holding out for $8.17 billion in revenue, essentially flat with the prior year's showing. 

Things haven't been going well for Rite Aid. Comps declined 2.2% through all of fiscal 2017, and with margins shrinking, the bottom-line results have been getting crushed. It's hard to blame Rite Aid. It's in limbo. The Federal Trade Commission keeps holding off on a final decision, and that's naturally going to weigh on everything from Rite Aid's own growth initiatives to employee morale. 

Rite Aid needs to prove that it's not merely phoning it in as a lame-duck retailer. It's not just standing in place. It's been remodeling some of its tired 4,536 stores. However, the horizon will remain cloudy until regulators either clear or more likely nix the acquisition by Walgreens. 

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The stock has taken a beating, down 62% so fair in 2017. The shares are trading for less than half of the $6.50-per-share floor of the revised acquisition deal that expires at the end of next month. The writing's on the wall, and Rite Aid will likely be on its own again by the time it reports its fiscal second-quarter results in three months. It will need to sound as if it's ready to break out on its own again in Thursday's presentation. The engagement is close to being called off this summer, and Rite Aid will have to start acting like a swinging single again. 

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.