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Why Rite Aid Shares Roared

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 drug store chain Rite Aid (NYSE: RAD  ) soared more than 14% this morning after its quarterly results and outlook topped Wall Street expectations.

So what: The stock has soared in 2013 on an impressive string of profitable quarters, and today's second-quarter results -- income of $32.8 million versus a loss of $38.8 million -- coupled with upbeat full-year guidance only reinforces that operating momentum. While both revenue and same-store sales only increased about 1%, strong demand for higher-margin generic drugs continued to boost profitability.  

Now what: Management now sees full-year EPS of $0.18 to $0.27 on revenue of $25.1 billion to $25.3 billion, up from its prior view of $0.04 to $0.19 and $24.9 billion to $25.3 billion. "As we continue to improve our operational and financial performance," CEO John Standley said in a statement, "we are also making tremendous progress in transforming our more than 4,600 stores into true neighborhood destinations for health and wellness, as indicated by our successful launch of the wellness65+ loyalty program for seniors, a strong start to our flu immunization campaign and the completion of our 1,000th wellness store remodel." Of course, when you couple Rite Aid's still-hefty debt load with its red-hot stock price -- now up a whopping 230% over the past year -- I'd wait for more of the risks to be discounted before jumping in.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 19, 2013, at 11:14 AM, ghstflame wrote:

    See you at $10

  • Report this Comment On September 19, 2013, at 3:23 PM, MissingCapitola wrote:

    Once RAD got rid of that dweeb Sammons and got someone who understands business, they had nowhere to go but up. And they continue to do so even though a few Motley writers stick it to them every chance they get. To may want to revisit your analysis.

  • Report this Comment On September 19, 2013, at 8:05 PM, EvanBuck wrote:

    Grrrr. Now I'm really regretting selling off those RAD shares at $3.50. Sigh. Oh well.

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9/30/2016 9:32 AM
RAD $7.65 Up +0.08 +0.99%
Rite Aid CAPS Rating: ****