If

Rite Aid

(RAD) - Get Report

investors took their medicine during the stock's 39% free fall Friday, analysts who cover the drugstore giant were taught a lesson as well: Management's word isn't always the last.

It is a lesson that won't be easily forgotten. Rite Aid's fortunes on Wall Street rose in part on optimistic analysis from powers such as

Merrill Lynch

(MER)

,

Lehman Brothers

(LEH)

and

Morgan Stanley Dean Witter

(MWD)

. Most had rated the stock a buy. Even allegations of conflicts of interest involving top management hadn't changed analysts' minds.

Friday, at least one of those analysts reversed course as the company said its fiscal fourth-quarter earnings would fall to between 30 cents a share and 32 cents a share, well below the

First Call

consensus of 52 cents a share, as a result of ballooning expansion costs. The company is scheduled to report earnings March 29.

The stock had been a favorite of Merrill Lynch analyst Mark Husson, who saw it as a cheap way to play the aging of America. Rivals

Walgreen

(WAG)

and

CVS

(CVS) - Get Report

traded at far higher multiples than Camp Hill, Pa.-based Rite Aid. By the end of the day, Husson published a report that stated: "The stock here is for the brave due to lack of visibility in earnings."

That report, titled "Clouds of Uncertainty," emerged from the wake of Friday's carnage to say that the drugstore chain had "lost control of its aggressive store opening program in Q4," and that "other operational controls also appear to have melted down." The report also said that Merrill's "confidence in the company's ability to control growth in the future is diminished."

Husson, who didn't return a call for comment and had left his office at Merrill by 4:50 p.m. EST Friday, also told the company he felt he was not given appropriate guidance during the past two weeks, when he had asked about expansion-related issues, says one person familiar with the situation.

Rite Aid didn't return a call seeking comments.

The stock had sagged of late as reports in

The Wall Street Journal

raised questions about conflicts of interest among Rite Aid's management, led by Martin Grass, chairman and chief executive. Prior to the earnings warning, shares had already declined more than 20% for the year. And despite reassurance from Husson and other analysts that all was well, the stock was limping along -- off about 14% in the last 10 days. It plunged 14 7/16 to 22 9/16 Friday.

Husson, who had rated the stock a long-term buy, apparently was as surprised as anyone by the company's announcement Friday, says the person familiar with the situation. He had questioned Rite Aid management relentlessly about these issues in the preceding weeks, only to be told that business was zooming along, this source says.

The analyst isn't the only company watcher who feels misled. A major shareholder, who asked not to be named, says he was similarly stonewalled in recent weeks.

"I had asked them repeatedly if they were having any problems with the new distribution center, and they told me that everything was going okay," the shareholder says.

In its statement Friday morning, Rite Aid said problems closing its old distribution center in Shiremanstown, Pa., and opening a new facility in Perryman, Md., would trim 3 cents from fourth-quarter earnings.

"The bottom line is they were 11 weeks behind schedule, and they had software problems," the shareholder says. "To say everything is on plan is

poor guidance."