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Is Rite Aid (RAD) Poised to Beat Q3 Earnings?

Zacks Equity Research

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).

Read the Full Research Report on RAD
Read the Full Research Report on WAG
Read the Full Research Report on KMX
Read the Full Research Report on WGO

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