Is Rite Aid Gaining on CVS and Walgreen?

Rite Aid is shoring up its brand, and its earnings report last week excited some analysts. But the question remains whether the company can sustain the momentum against its rivals CVS and Walgreen.

Apr 24, 2014 at 12:17PM

Rite Aid (NYSE:RAD)has been under the weather these past few years, but its last earnings report shows the retail chain is on the road to recovery. In fact, Rite Aid's recent initiatives starting with remodeling stores and the acquisition of Texas-based Redi-Clinic have been a shot in the arm and make the company far more competitive.

Rite Aid posted very heatlhy financials last week. The company's adjusted earnings were up by about 43% year over year, coming in at $0.10 per share. Rite Aid also raised its fiscal 2015 guidance. The company anticipates revenue in a range from $26 billion to $26.5 billion. The pharmacy retailer also expects comparable-store sales growth in the range of 2.5%-4.5% along with earnings per share in a healthy range of $0.31-$0.42.

The report quickly helped to boost Rite Aid's share price by more than 10% --presently trading at about $7.10 per share.

Rite Aid throws its hat into mini-clinic ring
Rite Aid also made headlines earlier this month by announcing its acquisition of RediClinic. According to the press release, RediClinic currently runs 30 retail mini-clinics in several metropolitan areas in Texas. The company will operate as a subsidiary of Rite Aid and will undertake a bold expansion plan by adding 70 new clinics in the next two years.

Rite Aid's chairman and CEO said in a statement, "Retail clinics play a critical role in today's health care delivery system and will play an important role in Rite Aid's overall health and wellness strategy."

Rite Aid's acquisition of RediClinic is obviously designed to compete more effectively with sector leaders CVS Caremark (NYSE:CVS) and Walgreen (NASDAQ:WBA). These companies also have well established mini-clinic services and have plans to expand clinics in retail outlets.

Like the other mini-clinics, RediClinics are staffed by board certified nurse practitioners and physician assistants. These licensed practitioners are capable of treating common conditions and providing preventive services. The clinics work in conjunction with local physicians affiliated with health-care systems in each market. Patients can be treated for an array of medical conditions and obtain prescriptions for these conditions if need be.

Why this matters
Rite Aid's recent earnings announcement combined with the acquisition of RediClinic is good news for the retail drugstore as it continues a long turnaround and aims to grow its brand.

Rite Aid has been an "also ran" against its rivals CVS and Walgreen for a number of years. Between 2008 and 2012, Rite Aid was losing ground and posting losses each year. But things are definitely on an uptick, and branching into the mini-clinic game will position the company not only as a comeback story but as a growth play as well.

Furthermore, the acquisition of RediClinic dovetails with Rite Aid's store remodelings already in progress. A number of stores are being transformed into so-called "wellness stores" that feature offerings like organic and gluten-free foods, fitness and workout equipment, and more personalized medication therapy management. In fact, these health-oriented outlets are presently outperforming the traditional stores with sales 3.2% higher.

Should CVS Caremark be worried?
CVS Caremark reported its fourth-quarter and full-year 2013 results on Feb. 11. Adjusted earnings per share came in at $1.12, and this exceeded prior-year earnings by 15.8%.

The company remains strong in many ways, with top-line growth of 4.6% in the reported quarter. This was driven primarily by a 5.2% year-over-year increase in net revenue from the pharmacy services segment and a 5.6% rise in net revenue from the retail pharmacy segment.

Moreover, same-store sales increased 4% compared to the same time period in 2012 aided by a 6.8% rise in pharmacy sales. This boosted net revenue in the retail pharmacy segment by 5.6% to a solid $17.2 billion. Going forward CVS raised its first-quarter 2014 adjusted earnings guidance to a range of $1.03-$1.06 per share, or 24.25% to 28.25%.

CVS Caremark, moreover, has set itself apart from Rite Aid and Walgreen by announcing in February it will phase out tobacco products by October. This move fits in with CVS' broader strategy to become a provider of health and wellness services.

Kicking the habit may also be a play to outmaneuver Rite Aid and Walgreen, as each company has yet to announce plans to follow CVS' lead. And whether this is wise is questionable in light of the recently reported letter sent to these pharmacy chains (and other retail outlets) by a group of state attorneys general urging them to stop selling cigarettes.

Investors should take note because this development might be the first step in a legal action by the government in time. Of course, this is purely speculation; but given the regulatory creep into the private sector since the financial crisis, any action by legal and regulatory authorities is something to watch.

Final Foolish prescriptions
Rite Aid's turnaround has the company back in play since it is a profit maker again. And the rebranding of the company with its wellness program aimed at healthy living makes it much healthier overall.

In short, Rite Aid's current share price makes this an attractive buy since it is much cheaper than CVS and Walgreen. That being said, these two leading pharmacy chains are still good bets for investors with a long-term view since each has a large market share and a big head start in the mini-clinic game. Ultimately the pharmacy sector continues to provide investors with a number of healthy options for growth and diversification.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Kyle Colona has no position in any stocks mentioned. The Motley Fool recommends CVS Caremark. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers