Drug store retailer, Rite Aid Corporation RAD is slated to report third-quarter fiscal 2016 results on Dec 17, before the opening bell. In the last quarter, the company had delivered a positive earnings surprise of 33.3%. Let’s see how things are shaping up for this announcement.
Factors Influencing This Quarter
Rite Aid, which has been continuing with its comparable-store-sales (comps) growth trajectory since the first quarter of fiscal 2015, recently posted comps growth of 0.9% for third-quarter fiscal 2016. The company’s positive comps trend is the result of improved front-end and pharmacy comps, coupled with higher prescription count at comparable stores. Moreover, total drugstore sales for the quarter improved 0.8% to $6.701 billion.
Further, we remain optimistic of the company’s future prospects given its recent merger agreement with Walgreens Boots Alliance Inc.. The deal, which is expected to close in the second half of calendar year 2016, is likely to create a drugstore behemoth with a superior network that will cater to a vast array of health and wellness solutions in stores as well as online.
Apart from Rite Aid’s robust comps history and the merger deal, we believe the company’s constant endeavors to enhance pharmacy and clinical services via the Health Alliance and Wellness+ customer loyalty programs bode well. Additionally, the company’s stringent focus on cost management and strengthening its portfolio of health and wellness services has helped it deliver positive earnings surprises for five straight quarters. These factors keep us optimistic about the company’s performance in the third quarter.
Nevertheless, the risks related to increased industry consolidation and greater competition cannot be ignored, as these may dent results.
Earnings Whispers?
Our proven model does not conclusively show that Rite Aid is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: Rite Aid currently has an Earnings ESP of 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate both stand at 5 cents.
Zacks Rank: Rite Aid carries a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult. We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks that Warrant a Look
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Constellation Brands Inc. STZ has an Earnings ESP of +0.78% and a Zacks Rank #2 (Buy).
ConAgra Foods Inc. CAG has an Earnings ESP of +3.39% and a Zacks Rank #2.
Darden Restaurants Inc.’s DRI Earnings ESP stands at +4.76% and it carries a Zacks Rank #3.
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