This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

3 Reasons Why Rite Aid Is Right On

Stocks in this article: CVS RAD WAG

NEW YORK (TheStreet) -- Rite Aid (RAD), the third-largest U.S. drugstore chain, delivered an impressive performance in 2013. It has cranked out profits for five consecutive quarters, along with a 260% increase in its share price. However, by mid-December, the company's stock plummeted by 10% due to weak earnings guidance for the current fiscal year. The business's shares have now fully recovered, closing at $5.85 on Friday. Some of this recovery can be attributed to positive commentary by Deutsche Bank, followed by an upgrade by J.P. Morgan.

There are troubling aspects to the business, too. Rite Aid's sales growth has slowed amid the rise of generic drugs.

Despite the slowdown, a weak guidance and the massive rally in 2013, I believe Rite Aid's shares are still attractive for long term investors.

The company has a solid track record of meeting or breaking the market's revenue and earnings expectations. It has been working to increase its revenues and earnings, while its financial health has been improving. The company has delivered a strong performance in the previous quarters and may continue to do so in the coming years.

Quarterly Results

In the previous quarter, Rite Aid's revenue rose 1.9% year over year to $6.36 billion, above Wall Street's expectations of $6.32 billion. This growth was due to the 2.3% increase in same-store sales, led by a 3.5% increase in pharmacy sales.

Meanwhile, Rite Aid's net income rose 15.6% from the same quarter a year ago to $71.5 million, or 4 cents per share. This improvement came after a drop in interest expenses and lease termination and impairment charges. On the other hand, Rite Aid's adjusted earnings dropped by 4.4% from the prior year to $282.3 million. However, the prior year's results also include an $18.1 million benefit from a litigation settlement.

Weak Guidance

For the full year, Rite Aid has lowered its earnings guidance from 18 cents to 27 cents per share to 17 cents to 23 cents per share. This was particularly disappointing because even the high end of the guidance is 1 cent below the market's consensus estimate. Moreover, some of its other primary competitors, such as the industry leader CVS Caremark (CVS), are expecting improvements in sales and earnings in the future. CVS Caremark is expecting annual adjusted earnings of between $4.36 and $4.50 per share, which, unlike Rite Aid's guidance, is in line with the market's profit expectations of $4.47 per share.

For the full year, Rite Aid is expecting to generate revenues of between $25.3 billion and $25.4 billion, which is in line with market consensus revenue estimates of $25.36 billion. This will come on top of a modest 0.35% to 0.85% increase in same-store sales. If Rite Aid manages to meet market expectations, then its revenues will be largely flat from last year's $25.39 billion.

Rise of Generics

For Rite Aid, the drop in earnings estimate was due to Medicare reimbursement cuts and the higher cost of some generic drugs. The last couple of years have witnessed the expiration of patents on some leading drugs, which not only had an adverse impact on the top and bottom line growth of pharmaceutical companies, but also changed the business environment for drugstore chain operators.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs