December 20, 2012
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.