Shares of Rite Aid Corp. (RAD) achieved a new 52-week high of $5.35 on Oct 17, 2013, beating its previous high of $5.33 on Oct 7. Moreover, the drugstore chain retailer eventually closed trade at its new 52-week peak, reflecting a solid year-to-date return of approximately threefold. The average volume of shares traded over the last 3 months was approximately 26,872K.
Moreover, the company currently trades at a forward P/E of 24.8x, a 53% premium to the peer group average of 16.21x. The company’s premium valuation is justified, given its long-term earnings per share (EPS) growth rate of 17.5% versus the peer group’s growth rate of 13.7%.
We believe that the strong price appreciation is primarily attributable to the company’s comparable-store sales (comps) growth for September. This was the fourth consecutive month when Rite Aid posted positive comps results.
Apart from this, consistent positive earnings in the past four quarters were a tailwind. Rite Aid, which witnessed declining sales and weak bottom-line results in the recent past, is now showing signs of improvement, thanks to the company’s cost reduction initiatives and improvement in store-level performance.
This Zacks Rank #1 (Strong Buy) stock has outperformed the Zacks Consensus Estimate five times in the trailing six quarters. In the recently concluded quarter, Rite Aid posted adjusted earnings of 8 cents per share, which fared better than the Zacks Consensus Estimate of a loss of 4 cents and the year-ago comparable quarter’s loss of 5 cents.
Furthermore, on the back of better-than-expected first-half financial results and a stronger second-half performance than what was projected earlier, management raised its fiscal 2014 guidance. Rite Aid now expects earnings in the range of 18–27 cents per share for the fiscal, up from the previous range of 1–16 cents. Currently, the Zacks Consensus Estimate stands at 22 cents per share.
Rite Aid utilized additional resources such as the Wellness+ customer loyalty program and the Flu Immunization program to boost customers’ demand amid the challenging macroeconomic environment. The company’s customer loyalty program has been successful in attracting customers. This is evident from the fact that Wellness+ members in fiscal 2013 contributed 79% of front-end sales, compared with 68% in fiscal 2012.
On the cost front, the company is focusing on generating cost savings through centralized indirect procurement of drugs and reduction in supply chain costs. We believe that these programs and initiatives will facilitate the company to increase its customer base and generate long-term profitability.
Apart from Rite Aid, other retail stocks such as Colgate-Palmolive Company (CL), Best Buy Co., Inc. (BBY) and Newell Rubbermaid Inc. (NWL) touched new 52-week highs of $63.63, $42.96 and $28.85, respectively, on Oct 17.