Shares of Rite Aid (RAD -0.43%) had a healthy glow on Friday, as the stock surged as much as 17%. As of 1:12 p.m. ET, the stock was still up 7.2%.
The catalyst that sent the retail drugstore chain soaring was chatter that the company might still be in the crosshairs of activist investors.
Rite Aid held its annual meeting of shareholders on Wednesday, and it came away with a clean bill of health. The company's slate of board of director nominees was overwhelmingly reelected, illustrating that management still has the support of Rite Aid's shareholders.
That said, the company could still be the target of activist investors, according to Dealreporter (as reported by The Fly). The mergers and acquisitions (M&A)-focused publication said it's "not quite ready to take [Rite Aid] off our activist watchlist just yet" due to recent interest in the company.
Investors will recall that Rite Aid was the subject of a takeover bid back in April when it received a non-binding proposal from private equity firm Spear Point Capital Management to acquire the pharmacy chain for $14.60 per share, or a total of $815 million. This marked a 56% premium over the prior-day's closing price of $9.36. Rite Aid ultimately rejected the bid, finding "the proposal was not credible and did not warrant further exploration."
Dealreporter further notes that "shares are essentially unchanged since prior to the bid, still hovering around $7.50 per share," which suggests Rite Aid could continue to be the target of activist investors or further takeover interest.
Investors shouldn't get too excited about Rite Aid. Even after its bump today, the stock is still down more than 56% from recent highs after losing roughly three-quarters of its value.
What caused the falling stock price? A continuing long-term decline in the company's fundamentals, marked by further erosion of its free cash flow and operating income, which have fallen dramatically over the past decade.
Challenges remain for the retail pharmacy chain, as Rite Aid is also saddled with a heavy debt load, which will continue to weigh on its results, particularly as interest rates continue to soar. There are simply far better investment opportunities in the healthcare space.