Shares of Rite Aid Corp. (RAD) achieved a new 52-week high of $3.70 on Sep 10, 2013, beating its previous high of $3.62 on Aug 14, and eventually closed trade at $3.68. The average volume of shares traded over the last 3 months was approximately 20,593K. Moreover, the company currently trades at a forward P/E of 23.4x, a 59.6% premium to the peer group average of 14.66x.
We believe that the strong price appreciation is primarily attributable to the company’s comparable-store sales (comps) growth for the month of August. This was the third month in a row when Rite Aid posted positive comps results.
Apart from this, consistent positive earnings in the past three quarters were a tailwind. Rite Aid, which witnessed declining sales and weak bottom-line results in the recent past, is now showing signs of improvement, thanks to the company’s cost reduction initiatives and improvement in store-level performance.
Rite Aid reported a quarterly profit for the third consecutive quarter in Jun 2013. Moreover, this Zacks Rank #2 (Buy) stock has outperformed the Zacks Consensus Estimate four times in the trailing five quarters.
Rite Aid utilized additional resources such as the Wellness+ customer loyalty program and the Flu Immunization program to boost customers’ demand amid the challenging macroeconomic environment. The company’s Wellness+ customer loyalty program has been successful in attracting customers. This is evident from the fact that Wellness+ members in fiscal 2013 contributed to 79% of front-end sales, compared with 68% in fiscal 2012.
On the cost front, the company is focusing on generating cost savings through centralized indirect procurement of drugs and reduction in supply chain costs. We believe that these programs and initiatives will facilitate the company to increase its customer base and generate long-term profitability. Our stance is supported by Rite Aid’s strong performance in the past three quarters.
Apart from Rite Aid, other stocks such as Nike Inc. (NKE), Constellation Brands Inc. (STZ) and Five Below, Inc. (FIVE) touched new 52-week highs of $66.98, $58.32 and $48.99, respectively on Sep 10.
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