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Berko: Rite Aid is chancy; Walgreens could be better bet

By Malcolm Berko

Published: February 11, 2018, 6:00am

Dear Mr. Berko: Do you have a Facebook page? If so, our investment club can’t find it. We think it would be very interesting for the public to view your personal thoughts and get to know more about the man who has been writing for our newspaper for more than 35 years.

Also, what do you think about Rite Aid? Do you think it has a chance of coming back to the $5 to $9 range? If so, our club would like to buy 5,000 shares of the stock.

— D.R., Oklahoma City

Dear D.R.: I don’t use Facebook. I never have and never will. Facebook users are often, lonely, sad, despairing people who can’t find their own reality. They have weird behavioral problems and can’t function effectively in the multiple realities of a larger society.

I’m not lonely, sad or despairing. I’ve made a few lasting friends in the past 40 to 60 years, and that’s enough. Unlike Facebook users, I’m not an exhibitionist. I am very private and wouldn’t deign to share my personal thoughts with the cretins on Facebook, many of whom have room temperature IQs. I don’t give a fig about what’s happening to my high school and college acquaintances. Unlike habitual Facebook users, I live for the future, not in the past. I have a delightful life and family and don’t need Facebook’s validation of my choices. And I don’t have tattoos, either! Some folks estimate that 62 percent of Facebook users are disgusted with their bodies and cover their arms, faces and necks with repulsive colors and images so grotesque that they would scare a cat off a gut wagon.

Rite Aid (RAD-$2.05) is a $32 billion revenue retail chain with 4,600 drugstores in 31 states, 360,000 employees and 1 billion shares outstanding. RAD’s return on capital is 2 percent, which is equal to the yield on a 24-month certificate of deposit. Walgreens Boots Alliance (WBA-$73) also has 1 billion shares outstanding, and its 13 percent return on capital is six times higher than RAD’s. WBA’s gross margins are 30 percent, versus RAD’s 24.5 percent. RAD has zero percent return on equity, whereas WBA returned 17 percent last year. RAD’s operating margins are 2.5 percent, while WBA’s are 8.5 percent. WBA has $9 billion in working capital, versus RAD’s $1.5 billion. RAD’s cash flow per share is 25 cents; WBA’s is $6.65. WBA expects to post earnings of $5.7 billion this year and should raise its dividend from $1.58 to $1.72. RAD expects to lose about $10 million this year, and no dividend is in sight. RAD’s equity per share is 60 cents, whereas WBA’s share equity is close to $35. I could go on for lines and lines to show you more numbers that describe one company run by professionals and another run by the Keystone Kops. I’m disappointed that RAD’s management and board members clearly lack the skill set to make RAD a profitable company.

RAD sells the same lipstick, personal care stuff, over-the-counter medications, prescriptions and school supplies as WBA. And it does so at the same price. RAD’s problem is an intellectually crippled board of directors — who have, in my opinion, been milking the company — and a management team that couldn’t direct a two-car funeral. While RAD lost $15 million last year, the nine members of its board of directors received compensation ranging from $145,000 to $285,000. And the CEO, John Stanley, earned $7.5 million last year. Cheese and crackers got all muddy, even the executives are milking the cow at Rite Aid.

Some suggest that RAD’s accounting firm is complicit in RAD’s poor financial performance. And some recommend that the larger shareholders get their lawyers together and charge the current caretakers with misfeasance or malfeasance or a feasance of some sort to claw back the obscene sums paid to RAD’s management and board.

However, someone knowledgeable about the company recommends a small fling with RAD. He says you could lose the whole kit and caboodle or quadruple your money in a year.

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