Bull of the Day: Rite Aid (RAD) - Bull of the Day

Rite Aid Corporation (RAD), headquartered in Camp Hill, Pennsylvania, is the third largest retail drugstore in the U.S., based on revenues. The company has about 4,600 stores and 30 walk-in clinics in 31 states across the country and in the District of Columbia.

Strong Same-Store Sales for April

Rite Aid recently reported that the same store sales for April increased 5.0% over the prior-year period, thanks partly due to a shift in the timing for Eater. Same store sales for the eight-week period ended April 26, 2014 (fiscal year-to-date) increased 2.9% over the prior-year period. This was better than street estimates.

Excellent Results and Raised Guidance

Rite Aid reported its Q4 earnings on April 10, 2014. Revenues for the quarter came in at $6.6 billion; up from $6.5 billion in the same quarter of prior year, thanks mainly to a 3.5% increase in pharmacy same store sales.

Adjusted net income for the quarter was $44.1 million or $0.10 per share handily beating the Zacks Consensus Estimate of $0.04 per share.

The company recently acquired Health Dialog—a provider of in-store care coaches and RediClinic—a leading operator of retail clinics. These will further support RAD's growth initiatives. The management however does not expect a material impact from the acquisitions on the current fiscal result.

RAD also continues to expand its partnership with drug wholesaler MsKesson and expects a working capital benefit of $150 million as a result of the agreement, to be fully realized in the latter half of the year.

Rite Aid completed its 1,200^th wellness store remodel during the quarter as they continue to see positive results for these stores compared to the rest of the chain.

Following solid quarterly performance, Rite Aid management now expects sales for fiscal 2015 to be between $26.0 billion and $26.5 billion, with same store sales growth in the range of 2.5% to 4.5%.

Estimates Revisions


As a result of a strong quarterly report and updated guidance, analysts have raised their estimates for RAD. Zacks Consensus Estimate for the current fiscal year now stands at $0.36 per share up from $0.32 per share, 60 days ago. The consensus estimate for the next fiscal year is also up to $0.48 per share from $0.43 per share earlier.


RAD beat estimates in all the quarters last year, with an average quarterly surprise of 225%. Rising estimates sent RAD back to a Zacks Rank#1 (Strong Buy).


Growth Drivers

Ageing US Population: US population has been ageing fast and RAD is well positoned to benefit from this trend.

Affordable Care Act: With Affordable Care Act, total coverage is expected to expand to 25 million in 2016 from 12 million in 2014. This will expand the top-line for RAD.

Turnaround: Several initiatives taken by the company to reinvigorate top-line growth and reduce costs are delivering results. EBIDTA reached $1325 million in 2014 after bottoming out at $829 million in 2011.

The Bottom Line

RAD was earlier featured as the “Bull of the Day” on 10/24/13 and 4/24/14 and it has continued to climb during this period. We decided to take another look at the stock ahead of its Q1 earnings expected later this month and believe that it still has the potential to continue its run.

With its strong national footprint and recent strategic initiatives like expanding the health care offering, growing Wellness+ and investing in its stores, the company should be able to expand its customer base and continue its strong performance in the coming quarters. Further ageing US population and Affordable Care Act will further support the stock.

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