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Why Rite Aid, VeriFone Systems, and Diamond Foods Jumped Today

By Dan Caplinger – Mar 12, 2014 at 8:00PM

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The broader stock market managed to poke into the green to reverse two days of losses, despite investors continuing to worry about geopolitical and global macroeconomic concerns. But these three companies posted strong gains today. Find out more about why these three stocks soared.

On Wednesday, investors appeared to remain nervous for most of the day about the same issues that have plagued the market all week, including the ongoing tensions between Russia and Ukraine and signs of a further slowdown in the Chinese economy. By the close, the broader stock market managed to recover and post a tiny gain, but many stocks fared much better, with positive news sending their shares upward. Among today's winners were Rite Aid (RAD -5.41%), VeriFone Systems (PAY), and Diamond Foods (DMND.DL).

Rite Aid gained 7% in the wake of an analyst upgrade from Goldman Sachs this morning, with the company raising its price target on the drugstore chain operator by 60% to $8 per share. The analyst report pointed to some favorable factors helping Rite Aid, including a more extensive presence in states where Medicaid expansion could boost sales than rivals CVS Caremark (CVS 1.23%) and Walgreen (WBA 1.14%). Modest gains in same-store sales in February didn't blow investors away, but the real question is whether Rite Aid can keep chipping away at its debt burden and make progress in catching up with Walgreen and CVS on the earnings-growth front. With debt levels that almost match its market capitalization, Rite Aid still has further to go before it can declare itself out of danger for good.

VeriFone soared 11% after a favorable earnings report. Revenue gains of 1.7% and an adjusted profit of $0.31 per share gave investors in the electronic payment-system operator a positive surprise, and the company is even more optimistic about trends in the industry toward more secure payment methods that could require customers to upgrade older, more vulnerable equipment. Several analysts also piled on to raise price targets and future earnings estimates, pointing to other favorable factors such as international growth and digital advertising innovations. Some would argue that the stock already prices those growth expectations in, but there's no denying VeriFone's industry has huge potential for companies that can capitalize on it.

Diamond Foods picked up 11% as the snack-food maker also had a better report than investors had expected. Diamond's adjusted earnings per share topped estimates by a penny per share, and overall, the company's revenue was relatively flat from year-ago levels. But looking deeper at Diamond's numbers, there was a huge disparity in performance between the company's two major divisions, with nut sales plunging more than 10%, but sales of other snacks climbing almost 11%. CEO Brian Driscoll expects an unfavorable price environment for the nut division for the rest of the current fiscal year, but Diamond has made substantial headway after a dramatic plunge brought about the need for a long-term turnaround strategy.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends CVS Caremark. We Fools don't 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.

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