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Why Rite Aid (RAD) Is Declining Today

Stocks in this article: RAD WAG CVS

NEW YORK (TheStreet) -- Shares of Rite Aid (RAD) are down 9% to $5.24 in trading on Thursday following the drugstore's fiscal third-quarter earnings report.

Rite Aid reported revenue of $6.4 billion for the quarter, up from $6.2 billion in the year-ago quarter. Same-store revenue increased by 2.3% during the quarter. The company reported a profit of 7 cents per share.

Despite increases in the quarter, the drugstore operator cut its per share earnings estimates for the fiscal year and raised its revenue estimates. Rite Aid now estimates earnings of 17 cents to 23 cents per share for the year on revenue between $25.3 billion and $25.425 billion. Previously the company projected per-share profit of 18 cents to 27 cents, and revenue of between $25.1 billion and $25.3 billion.

According to the Wall Street Journal, Rite Aid and competitors Walgreen's (WAG) and CVS Caremark (CVS) stand to lose revenue due to new generic drugs.

"Though generic drugs carry higher margins than branded ones," the report says, "they can hurt sales because they command lower prices."

TheStreet Ratings team rates RITE AID CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate RITE AID CORP (RAD) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations and solid stock price performance. However, as a counter to these strengths, we find that the company's profit margins have been poor overall."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • RAD's revenue growth has slightly outpaced the industry average of 6.3%. Since the same quarter one year prior, revenues slightly increased by 0.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Powered by its strong earnings growth of 160.00% and other important driving factors, this stock has surged by 427.35% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • Net operating cash flow has significantly increased by 341.63% to $79.47 million when compared to the same quarter last year. In addition, RITE AID CORP has also vastly surpassed the industry average cash flow growth rate of -54.43%.
  • The gross profit margin for RITE AID CORP is currently lower than what is desirable, coming in at 30.14%. Regardless of RAD's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.52% trails the industry average.
  • You can view the full analysis from the report here: RAD Ratings Report

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