Shares of Fred's, Inc. (NASDAQ: FRED) hit a new
52-week high of $21.77 earlier this week after the company announced a blockbuster deal to buy
more than 800 stores from Walgreens Boots Alliance Inc (NASDAQ: WBA) and Rite Aid Corporation (NYSE: RAD) for $950 million in cash.
The deal boosted
Fred's market cap from $450 million to $1.3 billion overnight as the retailer will now become the third-largest drug store
chain in the United States.
The stock took a breather on Thursday and was trading lower by nearly 5 percent at $19.44. Traders and investors are attributing
the selloff to four unique factors.
1. Profit Taking
Fred's stock traded above the $20 per share on Wednesday, which actually marks the highest level the stock has traded at in 10
years.
Needless to say, Fred's investors banked a massive overnight profit, and it shouldn't come as a surprise some investors are
cashing out.
2. Insider Selling
Michael Hayes, Fred's chairman emeritus of the board and a former CEO of the company, disclosed in a regulatory filing that he
had sold 3,243 shares of Fred's stock at an average price of $19.29.
It is not known if the executive's transaction is indicative of his opinion that the stock has reached a peak or if he wanted to
free up cash ahead of the holiday season.
3. Rite Aid's Report
Since Fred's acquired hundreds of new retail locations from Walgreen's and Rite Aid, investors will be paying close attention to
how these stores are performing.
Rite Aid reported early Thursday morning that it earned $0.02 per share in its
third quarter on revenue of $8.1 billion. Wall Street analysts were expecting the company to earn $0.04 per share on revenue of
$8.2 billion.
In addition to a top- and bottom-line miss, same-store sales for the quarter fell 3.4 percent from a year ago, consisting of a
4.7 percent decrease in pharmacy sales and a 0.4 percent decrease in front-end sales.
4. Technical Resistance At The $20 Level
Shares of Fred stalled at the $20 level on Tuesday, but once they broke through the $20 level, they soared higher by another $2
per share, marking a classic technical breakout.
Throughout Wednesday's trading session, the stock flirted with the same $20 technical level. When that level started to break
down, the stock price fell to another technical level at $18 before bouncing back above $19 per share.
The $18 level serves as another important technical level, which became apparent when the price action between 9:30 and 9:50
a.m. on Tuesday when the price stalled briefly at that level.
Image Credit: By Michael Rivera - Own work, CC BY-SA 4.0, Wikimedia Commons
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