Thursday, February 18, 2010

UBS thinks RAD is Rad....

No, not this Rad:

They prefer RAD, the common stock of RiteAid, up big as their analyst says RiteAid's per-location valuation is too much of a discount to yesterday's price paid by Walgreens for Duane Reade.

Specifically, UBS notes that the Duane Reade deal amounted to an Enterprise Value of $4.2million per store.  They also note that Long's Drug stores were valued at $5.6million each in their 2008 buyout.  Contrast that with RiteAid's implied valuation of $1.6million per store, and they think the discount is far too much.  I think they make a terrific argument, based on sales per store being only 22% below Duane Reade's numbers.

So, UBS isn't saying RAD is in great shape - far from it -they simply think there's upside for the shares because they trade at too much of a discount to other drugstore buyout prices.    

I looked at RAD's recent ability to cover their debt payments.  Still razor thin, but showing improvement:

A recent presentation by RiteAid's management can be found here.  Pretty good analysis of their operating improvements, and their attempts to get some breathing room in terms of debt maturities.

Copyright 2010 AlphaNinja

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