Rite Aid Could Beat Street Expectations: UBS Gives 3 Reasons Why

In a report published Thursday, UBS analyst Steven Valiquette maintained a Buy rating and price target of $10 on

. The company is scheduled to report its F1Q16 results in a week and the analyst believes that the results could beat the consensus expectations. Currently, the Street expects Rite Aid's EBITDA to decline 2 percent year on year. However, the company's F1Q15 results suggest 9 percent year on year growth. In addition, F1Q15 was a challenging quarter, with MAC reimbursement pressure from PBMs, which was aggravated by the absence of new generic drug launches. "Given the factors described above that plagued RAD's in F1Q15 last year, it seems to us that all of these variables have now improved fairly materially year-over- year. We believe this sets the stage for RAD to potentially exceed the $279 mil Street consensus EBITDA for F1Q16 by a fairly wide amount," the UBS report stated. The analyst provides three reasons for this expectation. Firstly, savings from the

appeared to be accelerating towards the end of FY15 and are likely to have gained more steam in F1Q16 with the addition of Celesio generic volumes by McKesson. "Second, it appears generic drug price inflation has at least temporarily moderated during RAD's F1Q16, particularly in the final two months of the quarter in April in May," Valiquette said, adding, "A larger number of generic products y-o-y has witnessed price reductions in recent months, which is positive for RAD." Lastly, given the historical sequential EBITDA trend for F4Q/F1Q in the last five years, the analyst expects the company to see upside in F1Q16.