Will Rite Aid (RAD) Miss Estimates this Earnings Season?

Rite Aid Corporation RAD, drug store retailer is slated to report its second-quarter fiscal 2015 earnings on Sep 18, 2014, before the opening bell. In the previous quarter, the company's earnings surprise was 0.00% as its reported earnings came in line with the Zacks Consensus Estimate of 4 cents a share. Let's see how things are shaping up for this announcement.       

Factors Influencing this Quarter

The company delivered mixed first-quarter results, wherein its top line improved year over year, propelled by improved comparable-store sales (comps). However, profits declined steeply from the comparable year-ago quarter. Earnings were disappointing primarily due to high cost of drugs and lower reimbursement rate. Following the first quarter, the company anticipates reductions in generic purchase price for the rest of the year, leading to trimmed full-year earnings guidance. However, the company, which trails only Walgreen Co. WAG and CVS Caremark Corp. CVS in size, intends to maintain its focus on store remodeling.

Earnings Whispers

Our proven model does not conclusively show that Rite Aid is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here as you will see below.

Negative Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at -16.67%. This is because the Most Accurate estimate of 5 cents is below the Zacks Consensus Estimate of 6 cents.

Zacks Rank: Rite Aid carries a Zacks Rank #4 (Sell), which lowers the predictive power of ESP.

We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Another Stock to Consider

Here is another company you may want to consider as our model shows it has the right combination of elements to post an earnings beat:

Lithia Motors Inc. LAD, Earnings ESP of +2.16% and a Zacks Rank #1 (Strong Buy).