On Sep 27, Zacks Investment Research upgraded
Rite Aid Corporation
) to a Zacks Rank #1 (Strong Buy).
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Why the Upgrade?
Rite Aid has been witnessing rising earnings estimates on the
back of better-than-expected second-quarter fiscal 2014 results.
The drugstore chain operator posted a quarterly profit for the
fourth consecutive quarter, driven by higher adjusted earnings
before interest, taxes, depreciation and amortization (EBITDA)
and lower interest expenses. Moreover, the company has witnessed
11 straight quarters of improved adjusted EBITDA.
The company has outperformed the Zacks Consensus Estimate 5 times
in the trailing 6 quarters.
On Sep 19, Rite Aid reported second-quarter fiscal 2014 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. The company's total revenue
inched up nearly 0.8% year over year to $6,278.2 million and
surpassed the Zacks Consensus Estimate of $6,265.0 million.
Better-than-expected quarterly results prompted management to
raise its adjusted EBITDA and earnings outlook for fiscal 2014.
The company raised its adjusted EBITDA guidance range to
$1,240.0-$1,300.0 million for fiscal 2014, from $1,090.0-$1,175.0
million projected earlier. 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.
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 the store-level performance.
Of late, Rite Aid has been utilizing 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 in fiscal 2013 Wellness+ members
contributed 79% of the front-end sales, compared with 68% in
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.
The Zacks Consensus Estimate for fiscal 2014 increased 37.5% to
22 cents per share as most of the estimates were revised higher
over the last 30 days. Moreover, for fiscal 2015, the estimates
were revised higher over the same time frame, lifting the Zacks
Consensus Estimate by 19.2% to 31 cents per share.
Other Stocks to Consider
Besides Rite Aid, other stocks performing well in the drugs store
and drug supplies industries are
GNC Holdings Inc.
). All these companies carry a Zacks Rank #2 (Buy).