Rite Aid (RAD) and Walgreen (WAG) Rise on CVS Caremark (CVS) Tobacco Announcement

NEW YORK (TheStreet) -- Rite Aid  (RAD) and Walgreen (WAG) closed up 2.06% and 3.4%, respectively, at the close of the trading day on Wednesday after CVS Caremark (CVS) announced that it would cease selling cigarettes and tobacco products at its locations.

CVS fell 1.01% to $65.44, down 67 cents from its previous close of $66.11, in the wake of the announcement. It had a volume of 10,092,115, nearly double its average of 5,348,820.

Rite Aid, on the other hand, climbed to $5.45, up 11 cents from its previous close of $5.34, and hit a high of $5.46 for the day, while Walgreen moved up to $57.85, a $1.90 increase from its previous close of $55.95. It, too, traded above its average volume of 5,645,420 with 8,100,587 for the day.

Must Watch: Jim Cramer: How to Play CVS Kicking the Tobacco Habit

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 6.3%. 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 263.46%, 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 RITE AID CORP is still fairing well by exceeding its industry average cash flow growth rate of -48.15%.
  • 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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