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4 Reasons Why You Should Add Rite Aid to Your Portfolio

Zacks Equity Research

Rite Aid Corporation RAD is an appropriate investment option at the moment given the robust services provided by this drug-store retailer. The company has been benefiting from its efforts to reach out to customers and making available medicine refills for the prescribed customers. Moreover, the company’s EnvisionRxOptions strategy and focus on PBM bode well.

Driven by these positives, the company’s shares have outperformed the industry and the overall Retail-Wholesale sector in the past three months. This Zacks Rank #1 (Strong Buy) stock has rallied approximately 44.8% compared with the industry’s and sector’s growth of 14.4% and 20.6%, respectively.

That said, let’s delve into the factors that make Rite Aid a promising bet.



Solid Demand Show

Rite Aid is benefiting from the expansion of services to its customers amid the COVID-19 crisis. Notably, the company is providing free home delivery service to customers with an eligible prescription. Further, it is offering pick-up services for prescriptions and over-the-counter products, and customers can also use the drive-through option available at more than 50% of its retail locations. Moreover, its newly launched Buy Online Pickup In Store initiative will offer better drive-through and curbside pickup options. Apart from these, Rite Aid expanded the Instacart delivery facility to more than 2,400 locations and received positive feedback for the same. Moreover, the surge in demand for Tele Health in the wake of COVID-19 has led the company to launch Rite Aid Virtual Care.

Increased Focus on PBM

Rite Aid remains focused on strengthening its foothold in mid-market PBM, innovating across its retail and mail-order pharmacy channels, enhancing the in-store experience by curated digital offerings, improving merchandises and rebranding its image with a new logo. The company continues to witness solid performance in PBM, in terms of mail orders, with a client retention rate of nearly 95% for the 2021 selling period. This can be mainly attributable to customers increasingly stocking up 90-day refills in the wake of COVID-19. Notably, sales from mail orders grew 22% year over year on the back of a rise in Medicare Part D membership and COVID-19. Apart from this, its new RxEvolution strategy, with the help of which Rite Aid is likely to become a leader in mid-market PBM, remains on track.

Impressive Results Bodes Well

Despite reporting a narrower-than-expected loss, the company’s sales beat the Zacks Consensus Estimate and grew year over year. Further, retail pharmacy segment revenues grew 6.7% due to higher same-store sales. In the pharmacy services segment, revenues rose 26.2% owing to a rise in Medicare Part D membership. Moreover, retail pharmacy same-store sales advanced 6.6%, thanks to a 14.2% and 2.2% rise in front-end and pharmacy sales, respectively. The company’s decision to keep stores open amid the coronavirus outbreak and enhanced digital capabilities to provide essential services to customers aided results. Solid growth in prescription deliveries to the tune of 86%, driven by free home delivery services as well as a sturdy performance at Elixir, also contributed to the quarterly growth.

Elixir – A Growth Driver

Rite Aid remains on track with its growth strategy — EnvisionRxOptions (which is to be renamed Elixir). In first-quarter fiscal 2021, EnvisionRxOptions witnessed solid growth, backed by an increase in the Medicare Part D membership. Going forward, management is optimistic about this, and as a result, continues to invest in the expansion of EnvisionRxOptions, especially its services, technologies and clinical offerings.

Wrapping Up

All said, we believe that Rite Aid’s growth plans will help it stay afloat amid the ongoing coronavirus pandemic and sustain the stellar show. In fact, the stock’s VGM Score of B also pose a favorable view.

Stocks to Consider

The Kroger Co. KR has an impressive long-term earnings growth rate of 5.5% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lowe’s Companies LOW has an impressive long-term earnings growth rate of 16.1% and a Zacks Rank #2 (Buy).

Tractor Supply Company TSCO has an impressive long-term earnings growth rate of 12.4% and a Zacks Rank #2.

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