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Why Rite Aid Shares Popped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of struggling drugstore chain Rite Aid (NYSE: RAD  ) got a pick-me-up today, jumping 16%, after recording its first quarterly profit since 2007.

So what: Rite Aid posted an impressive earnings beat with profits of $0.07 on expectations of a $0.03 loss. Considering the stock's closing price of $1.21 today, that quarterly profit represents a serious value for investors if the retailer can maintain those results. Revenues actually declined due to an increase in generic drugs, but that change helped drive profitability. The company also raised its 2013 guidance, but still expects a slight decline in same-store sales, and projects profits between -$0.05 and $0.03 a share.

Now what: Based on P/S valuation, Rite Aid is one of the cheapest stocks in the market. If the company can continue driving profits, the stock looks like a steal at today's prices. Investors should be aware of the company's huge debt burden, however, which, at over $6 billion, has likely deterred any buyout possibility from a peer such as Walgreen's or CVS. As those two companies have demonstrated, the pharmacy/convenience store business is here to stay, and is generally a profitable one. I wouldn't call Rite Aid a buy yet, as I'd like to see a consistent performance from it first, but it's definitely on my radar. You can do the same by adding it to your Watchlist here.

Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On December 20, 2012, at 8:13 PM, FM5 wrote:

    Rite Aid on the move , get in now

  • Report this Comment On December 20, 2012, at 9:15 PM, ctyank99 wrote:

    You people are FOOLs.... you were just knocking Rite Aid!

    It was just a matter of time. Rite Aid is good sound Fortune 500 comapny that got off track from the Eckartdt buyout. The debt has been hurting Rite Aid. They will be a classic turn-around story! Keep shopping Rite Aid!!!!

  • Report this Comment On January 15, 2013, at 1:33 PM, earlyseller wrote:

    As a lonng time ago trader in RAD, I am looking forward to the rumor (I made up?) that Walmart was considering buying them out to capture a big slew of small retail drug service outlets. This was based on the deal with Plan "D" at Humanna & Walmart. It makes a lot of fiscal sense (aside from enormous RAD debt) to rapidly enter massive newly focused retail drug & limited grocery inventory. My last trade in RAD was a Buy @ $3 and Sale @ $9 for nice gain. My latest Buy is at avg $1.25 and am looking for the buy out or implosion. Less $ exposed this round but, am open to any "Penny Stock" like gain. If the Glass folks weren't such Chesapeake fore- runners of greed, I would not be buying my meds at Wegman's or Costco today. I'd like to become lightheaded with a buyout so I can buy the wife a new van. She likes being up high.

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Related Tickers

10/21/2016 4:01 PM
RAD $7.04 Down -0.07 -0.98%
Rite Aid CAPS Rating: ****