Rite Aid Corp. (RAD) is set to declare its first-quarter fiscal 2014 results on Jun 20. The last reported quarter was the second consecutive quarter in which the company posted profits and easily surpassed the Zacks Consensus Estimate of break-even earnings. Let us now look at how things have developed for the imminent announcement.
Growth Factors in the Past Quarter
The year-over-year improvment in bottom-line results for the fourth quarter of fiscal 2013 was primarily driven by the introduction of high margin generic (non-brand) drugs and increased prescriptions at its pharmacy counters. Generic drugs are less expensive but generate higher gross margins for the company.
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+ 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.
Our proven model does not conclusively project Rite Aid as beating earnings this quarter. A stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, 2 or 3 to surpass earnings estimates. However, that is not the case here due to the following factors:
Earnings ESP: ESP for Rite Aid is 0.00% since the Most Accurate Estimate stands at 9 cents, which is in line with the Zacks Consensus Estimate.
Zacks Rank #2 (Hold): Rite Aid’s Zacks Rank #2 (Hold) increases the forecasting power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call. We caution against stocks with Zacks Rank #4 and 5 (Sell rated stocks) going into earnings announcement, especially when the company is undergoing negative estimate revisions.
Other Stocks to Consider
Rite Aid is not the only firm we are looking up to this earnings season. Our model shows that the following stocks have the right combination of elements to post an earnings beat this quarter:
Flowers Foods, Inc. (FLO) has an Earnings ESP of +2.86% and a Zacks Rank #1 (Strong Buy).
Mckesson Corp. (MCK) has an Earnings ESP of +7.83% and a Zacks Rank #3 (Hold).
CBS Corp. (CBS) has an Earnings ESP of +2.82% and a Zacks Rank #3 (Hold).
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