REVISED: Rite Aid shares climb above $1 — major hurdle cleared for No. 3 drug chain

NEW YORK Rite Aid stock traded at above the $1 mark on Monday — the first time the company’s stock has been above $1 since Sept. 19, 2008. As of the close of trading Monday afternoon, Rite Aid stock was up 16 cents for the day, or 17.78%, to $1.06.

The stock had been on a relatively steady rise since March 9, when it traded at just 21 cents per share.

You can say that Rite Aid’s shares have risen with the overall tide among drug retailers and the market in general, but there is no doubt that the growth curve for Rite Aid has been much sharper. Walgreens shares rose more than 44.6% since March 9, when it traded at $21.50, and closed yesterday at $31.11. CVS shares were up 35.9% during that period, closing Monday at $32.60, up from $23.98. Those gains were more or less in line with the S&P 500, up 34.4% from its 12-year low March 9 to May 11.

Meanwhile, Rite Aid shares were up 409% during that period.

You also could make the case that Rite Aid and its investors had more to gain than many other companies, and certainly more than its peers in drug retailing, from the recent surge in the price of its shares. If Rite Aid can keep the price above $1 for the 30 days leading up to June 30, it can avoid delisting without the need to execute the reverse split its shareholders approved back in December 2008.

In a statement dated March 9, Rite Aid noted that the New York Stock Exchange had issued a temporary suspension of its minimum share price listing rule, affording the company additional time and flexibility to regain compliance with the rule.

“Per the rules of the recent suspension, Rite Aid can now regain compliance by achieving the required $1.00 closing share price and $1.00 average closing share price over the preceding 30 consecutive days on any of the following dates: April 16, 2009; April 30, 2009; May 29, 2009; June 30, 2009; and August 17, 2009,” Rite Aid explained.

The move allowed Rite Aid's directors to stave off the reverse-split its shareholders had approved in December.

While nothing has changed about Rite Aid’s fundamentals, what has changed is the belief that Rite Aid could file bankruptcy, with today’s better high-yield bond market versus two months ago.

During the company's recent fourth-quarter conference call, CFO Frank Vitrano noted, “Although we still have 18 months before our September 2010 credit facility renewal, we are talking with our bank partners to explore refinancing options. Give the current credit market conditions, its premature to predict the final outcome but we feel confident that through our various initiatives to reduce debt by improving working capital and our performance, coupled with a term loan or high yield offering, we will be able to fully satisfy our future liquidity requirements albeit at a higher rate which is not factored into our guidance.”

More important, investors not only have faith that Rite Aid’s worst-case scenario is a lot less likely to happen, but also have greater faith in the company's ability to renegotiate its bank debt before September 2010 — something that Rite Aid executives have talked about attempting to do later this year.

Rite Aid still may have some road to travel in convincing investors that it still is a good “buy,” however. The company’s average call volume over three months is relatively low at 5.6 million. Comparatively, Walgreens' average volume is 9.4 million and CVS’ is 11.4 million.