Rite Aid Gains on Comps, Hits New High - Analyst Blog

Shares of Rite Aid Corporation RAD have been gaining momentum since the company released its comparable store sales (comps) results on Mar 6, 2014. Shares have climbed 2% since the comps release, apart from having touched a 52-week high of $7.05 yesterday. However, the company eventually closed at $6.77, amassing a significant year-to-date return of 34.3%.

Rite Aid's comps for the five weeks ended Mar 1, 2014 increased 1.5%. The growth was attributable to a rise in pharmacy comps, partly offset by a decline in front-end comps. Moreover, total drugstore sales for the period was $2.515 billion, up 2.4% from the year-ago figure of $2.457 billion. Prescription sales constituted 69.1% of total drugstore sales. Third-party prescription sales accounted for 97.3% of pharmacy sales.

Rite Aid is the third largest drugstore retailer in terms of number of stores after Walgreen Co. WAG and CVS Caremark Corp. CVS. Positive comps came as a relief for investors following the disappointing third-quarter fiscal 2014 results and an unfavorable outlook that released in Dec 2013.

Apart from positive comps, Rite Aid's shares have gained on the recent news of an expansion of its distribution agreement with McKesson Corporation MCK for both brand and generic pharmaceuticals, which will allow both the companies to mutually benefit from each other's expertise.

As per the terms of the expanded agreement, McKesson will be responsible for sourcing and distribution of generic pharmaceuticals for Rite Aid as a part of its proprietary One Stop Generics program. On the other hand, Rite Aid stores will benefit from McKesson's daily direct-to-store delivery service model for brand and generic pharmaceutical products.

Currently, Rite Aid trades at a forward P/E of 21.0x, a 9.1% premium to the peer group average of 19.24x. The last traded price is 5.6% above the Zacks Consensus average analyst price target of $6.41. Average volume of shares traded over the last 3 months stands at approximately 24,528.1K. Moreover, the company's long-term EPS growth rate is 17.5%, ahead of the peer group average of 16.8%.

Looking ahead, this Zank Rank #2 (Buy) company's sustained focus on expanding pharmacy and clinical services through its Wellness+customer loyalty program and remodeling of wellness stores raise our hopes. We believe that such measures will enable the company to broaden its customer base and boost top and bottom-line performance.