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Will Q1 Earnings Hold a Surprise for Rite Aid (RAD) Stock?

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Drug store retailer, Rite Aid Corporation is slated to report first-quarter fiscal 2017 results on Jun 16, before the opening bell. In the last quarter, the company delivered a positive earnings surprise of 16.7%.

In fact, the company has delivered an average positive earnings surprise of 42.5% in the trailing four quarters. Rite Aid’s bottom line beat the Zacks Consensus Estimate in each of the last four quarters. Let’s see how things are shaping up for this announcement.

RITE AID CORP Price and Consensus

RITE AID CORP Price and Consensus | RITE AID CORP Quote

Factors Influencing This Quarter

Though Rite Aid’s impressive earnings surprise history as well as year-over-year top-line growth indicate strong fundamentals, we remain skeptical about the company’s lower-than-expected sales results in the past two quarters. The top line miss in the fourth quarter of fiscal 2016 was attributable to a soft performance at the Retail Pharmacy segment, which was somewhat offset by the results of the Pharmacy Services segment.

Moreover, the company’s comparable store sales (comps) trend suddenly turned negative since Dec 2015. Comps declined 0.6% in the fourth quarter owing to decrease in front-end and pharmacy comps. Additionally, the company held back its forecast for fiscal 2017 due to the pending merger agreement with Walgreens Boots Alliance (WBA). These factors raise concerns regarding the company’s near-term growth prospects. Also, risks related to increased industry consolidation and greater competition is likely to hurt results.

Earnings Whispers

Our proven model does not conclusively show that Rite Aid is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Rite Aid currently has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 4 cents.

Zacks Rank: Rite Aid carries a Zacks Rank #3 (Hold). Though a favorable Zacks Rank increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies which you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Constellation Brands Inc. (STZ - Free Report) , slated to report earnings on Jun 30, has an Earnings ESP of +1.97% and a Zacks Rank #3.

Pepsico Inc. (PEP - Free Report) , expected to report earnings on Jul 14, has an Earnings ESP of +1.56% and a Zacks Rank #3.

Newell Brands Inc. (NWL - Free Report) , expected to report earnings on Jul 29, has an Earnings ESP of +1.39% and a Zacks Rank #1 (Strong Buy).

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