Zacks Investment Research downgraded shares of Rite Aid Corporation (RAD) from OUTPERFORM to NEUTRAL on April 30, 2013, with a target price of $2.75.
Based on the company's conservative outlook for fiscal 2014, we downgraded our long-term recommendation on Rite Aid to Neutral. We noticed that despite a strong fourth-quarter and fiscal 2013 bottom-line performance, the company's revenues and earnings per share outlook for fiscal 2014 were below the fiscal 2013 level. Moreover, the stock is trading at a premium based on our forward earnings estimates that limits its further upside. However, we remain impressed by the company's outstanding performance in the fourth-quarter and fiscal 2013. Driven by the introduction of high margin generic drugs and increased prescriptions at its pharmacy counters, Rite Aid recently posted a quarterly profit for the second consecutive quarter and a first-yearly profit since 2007. Moreover, Rite Aid is expanding its pharmacy and clinical services through its Wellness+ customer loyalty program and remodeling its wellness stores. We believe these programs and initiatives will enable the company to broaden its customer base and facilitate in sustaining its upbeat performance.
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