Drug store operator, Rite Aid Corp. (RAD) is scoring high on the favorability radar, backed by a splendid stock performance all through 2014, having witnessed 49.4% growth year to date. Additionally, the stock carries a Zacks Rank #2 (Buy), suggesting that it is a good pick for investors.
On analyzing the growth drivers, the primary focus directs toward its positive earnings surprise history. In the trailing four quarters, Rite Aid has surpassed the Zacks Consensus Estimate three times, adding up to an average surprise of 91.7%. Further, the company has beaten the Zacks Consensus Estimate consecutively in the past two quarters, posting an average surprise of 108.3%.
In the last concluded quarter, Rite Aid reported earnings of 10 cents per share that rose over two-fold from the prior-year quarter and was double the Zacks Consensus Estimate. Since the announcement of the company’s third-quarter fiscal 2015 results on Dec 18, Rite Aid’s shares have increased 24.8%.
The robust third-quarter performance was mainly driven by strong same-store sales (comps) growth on the back of a rise in prescription count as well as improved gross margin due to efficient expense management. Further, the company gained from its focus on strengthening its portfolio of health and wellness services, which also contributed materially to its performance in the quarter.
Driven by a 5.4% rise in comps, the company’s revenues rose 5.3% year over year to $6,692.3 million and surpassed the Zacks Consensus Estimate of $6,643 million.
Based on the company’s third-quarter results, management raised its guidance for fiscal 2015. It now expects net income to range between $315 million and $370 million or between 31–37 cents per share. The earnings per share guidance was significantly better than the previous guidance of 22–33 cents.
The better-than-expected results and favorable guidance triggered an uptrend in the Zacks Consensus Estimate. Consequently, the Zacks Consensus Estimate increased 16.7% to 7 cents for the fourth quarter, 21.4% to 34 cents for fiscal 2015 and 16.2% to 43 cents for fiscal 2016 in the past 30 days.
Apart from its solid earnings performance, Rite Aid, which competes with China Nepstar Chain Drugstore Ltd. (NPD) and Wal-Mart Stores Inc. (WMT), is riding on the success of its Health Alliance Program, which commenced in Mar 2014. Through this, the company works with different health care providers to offer holistic care to patients suffering from chronic or poly-chronic health problems. Rite Aid has been aggressively focusing on the expansion of the Health Alliance Program across all its stores to improve customer traffic and top line.
Moreover, Rite Aid remains committed to expanding its business and market share through alliances and lucrative acquisition opportunities, as is evident from its partnerships with GNC Holdings Inc. and RediClinic. These collaborations form part of the company’s strategic initiatives directed toward enhancing the top and bottom line.
We believe that these constant endeavors, along with its spectacular results, have led to the company's growth. Rite Aid is the nation’s third-largest drugstore chain in terms of store count, following Walgreen Co. and CVS Health Corporation (CVS).
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