We expect U.S. drugstore chain operator Rite Aid Corp. (RAD) to likely beat expectations when it reports third-quarter fiscal 2014 results on Dec 19, 2013.
Why a Likely Positive Surprise?
Our proven model shows that Rite Aid is likely to beat earnings because it has the right combination of two key components:
Positive Zacks ESP: Rite Aid currently has an Earnings ESP of +25.00%. This is because the Most Accurate estimate stands at 5 cents, while the Zacks Consensus Estimate is pegged at 4 cents.
Zacks Rank #3 (Hold): Note that stocks with a Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings estimate. The sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.
The combination of Rite Aid’s Zacks Rank #3 (Hold) and +25.00% ESP makes us very confident regarding a positive earnings beat on Dec 19.
What is Driving the Better-than-Expected Earnings?
Of late, Rite Aid has been focusing on bettering store-level performance, as part of its turnaround strategy. Apart from initiating programs like the Wellness+ customer loyalty program for diabetes and the Flu Immunization program, the company is implementing various cost-cutting measures to improve near- and long-term profitability. We believe that such steps will enable Rite Aid to broaden its customer base and facilitate in sustaining its upbeat performance.
Moreover, the company’s focus on introducing high-margin generic drugs and increased prescription at its pharmacy counters helped it to post better-than-expected earnings in three of the past four quarters, with an average positive surprise of 287.5%.
Stocks That Warrant a Look
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat:
Winnebago Industries Inc. (WGO), with Earnings ESP of +10.26% and a Zacks Rank #1 (Strong Buy).
CarMax Inc. (KMX), with Earnings ESP of +2.08% and a Zacks Rank #3 (Hold).
Walgreen Co. (WAG), with Earnings ESP of +1.39% and a Zacks Rank #3 (Hold).