Is Rite Aid Really Back?

On Thursday, Rite Aid (NYSE: RAD  ) will release its latest quarterly results. The drugstore chain has gone through plenty of ups and downs in recent years, but lately, the stock has made an impressive advance that points to the prospect of better times ahead for the company.

Rite Aid isn't quite as large as its competitors, but with more than 4,600 stores in more than 30 states within the U.S., the company certainly maintains a strong presence within the industry. It got an opportunity handed to it on a silver platter last year, but as the dust has cleared, can Rite Aid make the most of that opportunity? Let's take an early look at what's been happening with Rite Aid over the past quarter and what we're likely to see in its quarterly report.

Stats on Rite Aid

Analyst EPS Estimate

$0.09

Year-Ago EPS

($0.03)

Revenue Estimate

$6.27 billion

Change From Year-Ago Revenue

(3%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Will Rite Aid keep making money this quarter?
In recent months, analysts have only become more optimistic about Rite Aid's prospects, tripling their views on earnings per share for the May quarter while adding about $0.15 per share to their calls for both this fiscal year and next. The stock has responded in kind, soaring almost 70% since mid-March.

Rite Aid has impressed investors with its results lately. In its previous quarter, the company posted its second quarterly profit in a row, helping it turn a profit for the fiscal year. The combination of a bad flu season, a rise in the number of higher-margin generic drugs on the market, and the customers that Rite Aid gained from Walgreen (NYSE: WAG  )  during the latter's dispute with pharmacy benefit management company Express Scripts all led to Rite Aid's first moneymaking year since 2007.

Still, Rite Aid has been moving in the wrong direction when it comes to store counts. In order to manage its debt, Rite Aid has closed underperforming stores. At the same time, though, both Walgreen and CVS have opened new locations, extending their reach and threatening traditional areas of strength for Rite Aid.

Moreover, Rite Aid has announced some troubling results so far this quarter. April same-store sales fell 4%, while the company suffered another 1.5% decline in same-store sales in May. Part of the problem has come from the return of Express Scripts customers to Walgreen, as Walgreen reported a 7% increase in same-store prescription count during its March-May quarter, while Rite Aid saw lower counts in both April and May.

In Rite Aid's quarterly report, look for information about how the company's store remodelings are doing in spurring new sales. If the renovations are only sustaining existing business rather than driving new customers into stores, then Rite Aid could be looking at a failed turnaround before too long.

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Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On June 18, 2013, at 5:35 PM, EvanBuck wrote:

    Fairly balanced article. Nice write-up before the earnings report. Yes, RAD has plenty of risk, but with greater risk comes greater potential reward...we'll see on the 20th if RAD's turnaround story will continue.

  • Report this Comment On June 18, 2013, at 6:32 PM, afw3 wrote:

    Rite Aid is up 130%. 5 a lot but not when you figure it was about1 something . Not like it was 30 and went to 69. I have owned it for years and now have a profit. When I see other company's prices that are so overpriced with what they earn and the prices they are I think

    RAD is a real deal

  • Report this Comment On June 18, 2013, at 7:08 PM, KrisShankar wrote:

    You fail to mention the impact of generics as critical to Rite Aid's turnaround. Call it a lucky macro factor or whatever. But with 68% of the revenue coming from prescriptions, the generics are often an oft overlooked part of RAD's comeback. Also, no clearly reliable statistics link the flight of Express Script customers either way. WAG management continues to claim that customers are returning while CVS/RAD maintain they are staying. Also, with 30M new customers expected next year due to the Affordable Care act, this is a macro trend that will lift all boats, including Rite Aid. Also, I wouldn't ignore RAD's low Price/Sales ratio at 0.11 while peers WAG/CVS are at ~ 0.6. The P/S ratio has been used quite often in conjunction with the P/E ratio by fund managers to identify undervalued stocks.

  • Report this Comment On June 19, 2013, at 7:37 AM, ghstflame wrote:

    I'm with you Kris, the P/S is down, and the P/E is unstable. Both of those should normalize over the next 2-4 quarters after showing a full year of profitability. P/S is going up as the stock price goes up, and also goes up due to revenues dropping, the question is when will things look "normal" for it to be at a fair valuation.

    We are currently holding for $4, in theory if it can hit $5 and be required in all of the index funds then $6 is a realistic target. I've read many cases for $7-9/share being fair value, but but I don't think we can have a perfect guess at intrinsic value for 2 more quarters.

    I would still sit on the camp that it is definitely undervalued below $4.

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