Facing one problem can be bad enough. Two at once take the whole picture from bad to worse. Healthcare stock Rite Aid (NYSE:RAD) is in just such a situation, and “worse” is almost an understatement. Rite Aid lost almost 19% in Tuesday’s trading session, and it’s largely thanks to bad news from JPMorgan.
JPMorgan, via analyst Lisa Gill, noted that Rite Aid may have a tough time covering any fines or settlements that emerge from the Department of Justice’s lawsuit against it. The suit alleges that Rite Aid deliberately filled prescriptions for opioids that were unlawful to actually fill. One particular problem came from so-called “trinities,” which are considered a “red flag.” A “trinity” features a prescription written not only for opioids but also for muscle relaxants and benzodiazepine. The combination of these three is said to produce a greater euphoric effect.
Under normal circumstances, a company might opt for a settlement where they don’t have to admit wrongdoing, just pay the tab and walk away. But as Gill notes, paying that particular tab—especially given Rite Aid’s debt load—may be a challenge. A Bloomberg report notes Rite Aid’s debt load is up around $3.2 billion, without current maturities factored in.
Hedge funds seem to see a problem coming, and they’re abandoning the Rite Aid ship about as fast as possible. Hedge fund sentiment around Rite Aid is currently classed as Very Negative, as they sold 956,800 shares in the last quarter alone.
