A pair of fixed-income analysts is increasingly high on Rite Aid Corp., arguing that new management is showing signs of turning around the scandal-tainted drugstore chain. Elie Radinsky, high-yield analyst at Jefferies & Co., notes that Rite Aid recently amended its $1.85 billion senior secured credit facility, resulting in lower interest rate payments for the company. He recommends all the bonds in the capital structure, and has a price target of 105 on the 9.25% notes of '13, assuming Treasury yields remain in check. The issue was bid at 98 last Tuesday. Radinsky says Rite Aid will also benefit if proposed legislation aimed at increasing prescription drug coverage for seniors becomes law. "The major reason for non-compliance with prescriptions by the elderly is the high cost of medications. As prescriptions become more affordable, Rite Aid will get more people in the store so they can sell their high margin front-end merchandise."
A buy-side analyst has also recommended the name to her portfolio manager. She notes that the company's monthly same-store sales figures are improving, and that the company is doing a good job increasing its margins. She says that Rite Aid should be okay even if the economic recovery falters. "You have the strong macro trend of an aging baby boomer population, and most people will still get their prescriptions filled before they spend money on other things," she says.