Driven by strong second-quarter fiscal 2014 results and an
upbeat guidance, shares of
Rite Aid Corp.
) achieved a new 52-week high of $4.79 on Sep 20, 2013, before
closing at $4.67. The average volume of shares traded over the
last 3 months was approximately 22,177K. Moreover, the company
currently trades at a forward P/E of 20.3x, a 32.9% premium to
the peer group average of 15.27x.
We believe that the strong price appreciation is primarily
attributable to the company's consistent positive earnings in the
past four quarters. 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.
This Zacks Rank #3 (Hold) stock has outperformed the Zacks
Consensus Estimate five times in the trailing six quarters. In
the recently concluded quarter, Rite Aid posted adjusted earnings
of 8 cents per share, which fared better than the Zacks Consensus
Estimate of a loss of 4 cents and the year-ago comparable
quarter's loss of 5 cents.
Furthermore, on the back of better-than-expected first-half
financial results and the anticipation of a stronger second-half
performance than projected earlier, management raised its fiscal
2014 guidance. Rite Aid now expects earnings in the range of
18-27 cents per share for the fiscal, up from the previous
guidance range of 1-16 cents. Currently, the Zacks Consensus
Estimate stands at 23 cents per share.
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
Apart from Rite Aid, other stocks such as
The Kroger Co.
) touched new 52-week highs of $41.14, $47.94 and $60.90,
respectively, on Sep 20.
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