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Rite Aid Upped to Strong Buy

Zacks Equity Research

On Apr 11, Zacks Investment Research upgraded Rite Aid Corporation (RAD) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Rite Aid has been witnessing rising earnings estimates on the back of better-than-expected fourth-quarter fiscal 2014 results and it provided an impressive guidance for fiscal 2015. Moreover, this well-known drugstore chain retailer has beaten the Zacks Consensus Estimate by an average of 225% in the trailing four quarters.  The long-term expected earnings growth rate for this stock is 17.5%.

Rite Aid reported fourth-quarter adjusted earnings of 10 cents per share, registering year-over-year growth of 42.9% and handily beating the Zacks Consensus Estimate of 4 cents. The improved bottom-line results were primarily attributable to strong revenues and Rite Aid’s key turnaround initiatives.

Rite Aid's fourth-quarter revenues rose 2.2% year over year to $6,597.5 million and surpassed the Zacks Consensus Estimate of $6,551.0 million. Top-line growth was driven by 21% rise in comparable-store sales (comps), which benefited from rise in pharmacy sales, slightly offset by weak front-end sales.

Following the superb quarterly performance, Rite Aid now expects sales for fiscal 2015 to range between $26.0 billion and $26.5 billion, with comps growth in the band of 2.5% to 4.5%. Furthermore, adjusted earnings before interest, taxes, depreciation and amortization (:EBITDA) for the fiscal 2015 are anticipated to be in the range of $1.325–$1.40 billion.

Rite Aid, which trails only Walgreen Co. (WAG) and CVS Caremark Corp. (CVS) in size, expects its net income for fiscal 2015 to be between $313.0 million and $423.0 million or 31–42 cents per share.

The Zacks Consensus Estimate for fiscal 2015 increased 9.4% to 35 cents per share as most of the estimates were revised upward over the last 7 days. For fiscal 2016, half of the estimates were revised higher over the same time frame, lifting the Zacks Consensus Estimate by 4.7% to 45 cents per share.

Other Stocks That Warrant a Look

Apart from Rite Aid, another drug store retailer worth investment is Herbalife Ltd. (HLF), which has a Zacks Rank #2 (Buy).

Read the Full Research Report on RAD
Read the Full Research Report on CVS
Read the Full Research Report on WAG
Read the Full Research Report on HLF

Zacks Investment Research