Drugstore chain retailer,
Rite Aid Corp.
) remains on our Neutral list with a target price of $3.00. Our
long-term recommendation is well supported by the Zacks Rank #3
Rite Aid, which had 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 the improvement of store-level performance.
Rite Aid reported a quarterly profit for the third straight
quarter in Jun 2013. Moreover, the company has outperformed the
Zacks Consensus Estimate four times in the trailing five
Rite Aid applied additional resources such as the Wellness+
customer loyalty program and Flu Immunization program to
stimulate customers' demand amid a 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
On the flip side, we remain concerned about the sustainability
of profit in the long run, primarily in the absence of any major
catalyst driving top-line growth.
Moreover, Rite Aid's generic drug sales could be dented by
Wal-Mart Stores Inc
) entry into the retail generic drug market. Due to Wal-Mart's
wide array of manufacturers in India, Israel, and the U.S., the
mass merchant can offer the particular drugs at a more discounted
price when compared to the prices of Rite Aid.
Other Stocks Worth Considering
Other stocks that are worth a look in the drugstore retail
chain industry include
CVS Caremark Corp.
). Both these companies carry a Zacks Rank #2 (Buy).
BIOSCRIP INC (BIOS): Free Stock Analysis
CVS CAREMARK CP (CVS): Free Stock Analysis
RITE AID CORP (RAD): Free Stock Analysis
WAL-MART STORES (WMT): Free Stock Analysis
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