Shares of Rite Aid Corporation (RAD) escalated 2.2% on the recent news of an expansion of its distribution agreement with McKesson Corporation (MCK) for both brand and generic pharmaceuticals. Additionally, Rite Aid hit a 52-week high of $6.55 yesterday, before eventually closing at $6.41 and amassing a significantly high return over the past one year.
As per the terms of the expanded agreement, McKesson will be responsible for sourcing and distribution of generic pharmaceuticals for Rite Aid as a part of its proprietary One Stop Generics program. On the other hand, Rite Aid stores will benefit from McKesson’s daily direct-to-store delivery service model for brand and generic pharmaceutical products.
Rite Aid is one of the leading national drugstore chains in the U.S. while McKesson is a pioneer in pharmaceutical sourcing and supply chain management. This agreement, spanning for five years up to Mar 2019, will allow both the companies to leverage each other’s expertise.
Furthermore, shares of this Zacks Rank #3 (Hold) company have been gaining momentum since it posted positive 0.3% same-store sales (comps) for the four weeks ended Jan 26, 2013. The rise was an outcome of an increase in front-end comps, offset by a decline in pharmacy comps. Shares have jumped nearly 13.1% since the comps results released on Jan 30, 2014.
Rite Aid’s comps came as a relief for investors following the disappointing third-quarter fiscal 2014 results and an unfavorable outlook released in Dec 2013.
Looking ahead, the company’s sustained focus on expanding pharmacy and clinical services through its Wellness+ customer loyalty program and remodeling of wellness stores raise our hopes. We believe that such measures will enable the company to broaden its customer base and boost top- and bottom-line performance.
Currently, Rite Aid trades at a forward P/E of 30.8x, a 64.1% premium to the peer group average of 18.77x. The last traded price is 2.4% above the Zacks Consensus average analyst price target of $6.26. Average volume of shares traded over the last 3 months stands at approximately 26,504K. Moreover, the company’s long-term EPS growth rate is 17.5%, ahead of the peer group average of 16.8%.
Other than Rite Aid, CBS Corporation (CBS) and Lexmark International Inc. (LXK) also reached highs of $66.58 and $42.34, respectively, on Feb 19, 2014.
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