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TheStreet Open House

Why Rite-Aid (RAD) Is Up Today

NEW YORK (TheStreet) -- Rite-Aid (RAD) is climbing higher on Tuesday after receiving an upgrade from Goldman Sachs.

By noon, shares had added 5.5% to $6.79.

Goldman upgraded the drugstore chain to "buy" from "neutral" and upped its price target to $8 from $5.

The investment firm said though the company has been rallying since the beginning of the year (it's up 34% since January), there is more upside potential as comparable-store sales improve due to an expansion of the Medicaid program.

"Despite the 80% move in the stock (vs. S&P 11%) since September 2013, we still see upside in the company's turnaround. Two key elements to the story are store remodels and balance sheet deleveraging, and the expanded agreement with MCK should allow for the acceleration of one or both," added Goldman analyst Robert Jones in the note.

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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, compelling growth in net income and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including poor profit margins and weak operating cash flow."

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

  • RAD's revenue growth has slightly outpaced the industry average of 7.2%. Since the same quarter one year prior, revenues slightly increased by 1.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, RAD's share price has jumped by 288.30%, exceeding the performance of the broader market during that same time frame. 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.
  • RITE AID CORP's earnings per share declined by 42.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, RITE AID CORP turned its bottom line around by earning $0.12 versus -$0.42 in the prior year. This year, the market expects an improvement in earnings ($0.21 versus $0.12).
  • Net operating cash flow has declined marginally to $244.01 million or 9.12% when compared to the same quarter last year. Despite a decrease in cash flow of 9.12%, RITE AID CORP is in line with the industry average cash flow growth rate of -10.82%.
  • The gross profit margin for RITE AID CORP is currently lower than what is desirable, coming in at 29.91%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 1.12% trails that of the industry average.

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