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Can Rite Aid Continue Its Mind-Blowing Rally?

NEW YORK (TheStreet) -- Rite Aid (RAD - Get Report) is healthy.

Its shares, at close to $8, are up nearly 56% for the year to date and are up more than 200% over the last 12 months, easily outperforming its rivals CVS Caremark (CVS) and Walgreen (WAG). They can go higher still thanks to a company forecast of 3% revenue and income growth for the current fiscal year.

Rite Aid has accelerated the pace of remodeling its conventional stores into "Wellness" stores, which are driving the company's growth. The company is also benefiting from a favorable business environment thanks to the new health care law and an aging population.

Still, Rite Aid's shares are trading just 0.29 times their trailing sales, which makes it cheaper than most of the players in this industry, including CVS Caremark and Walgreen. Therefore, I believe Rite Aid's shares represent a buying opportunity. Deutsche Bank has recently set a price target of $9 on Rite Aid's shares, which represents a potential upside of 15.4% from the current levels.

During the quarter, Rite Aid's revenue climbed 2.2% from the same quarter last year to $6.6 billion while its net income dropped by 55% to $55.38 million. This drop was largely attributed to inventory accounting adjustments and debt extinguishment charges. Excluding the impact of these one-time items, the company's adjusted earnings climbed 43% to 10 cents per share.

Same store sales increased by 2.1% from last year, driven by 3.5% growth in pharmacy sales.

Meanwhile, Rite Aid's bigger rivals have reported better top-line growth. CVS Caremark reported revenue growth of 4.6% in the previous quarter while its same-store sales increased by 1.4%. Walgreen reported 5% revenue growth and 4.3% comparable sales growth.

However, for Rite Aid, the first half of the previous fiscal year was a particularly strong period, which is one of the reasons why the company has lagged behind its rivals in terms of the year-over-year comparison.

Moreover, Rite Aid has said that it will introduce several new generic drugs in the second half of the current fiscal year which will give a boost to the company's earnings in that period.

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