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Rite Aid (RAD) Stock Suffers Downside: Will it Turn Around?
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The stock of Rite Aid Corporation , the third largest retail drugstore in the U.S. based on revenues and the number of stores, has currently turned into a roller coaster ride as evident from its year-to-date price graph. The stock witnessed considerable upside in April on the back of its fourth quarter fiscal 2016 results, but has been on a decline since May and going down further following the recently released first-quarter fiscal 2017 results.
The stock is down about 1.2% year to date and has lost nearly 3% in 3 months' time. In the past one year, the stock has slumped nearly 11%.
The primary reason for the recent slump in the stock price is the Camp Hill, PA-based drugstore retailer’s dismal performance in the first quarter of fiscal 2017. Rite Aid’s first quarter fiscal 2017 results were a letdown as the company failed to live up to its its robust earnings surprise history. The company’s first quarter earnings missed estimates after seven quarters of consecutive beats, mainly due to a fall in adjusted EBITDA, offset by lower taxes and interest expense.
Though the quarter gained from solid performance of its Pharmacy Services segment and front-end business, along with efficient expense control, the miss was due to pharmacy reimbursement rate pressures as drug purchasing efficiencies were short of expectations.
Looking ahead, the company expects drug cost reductions to remain below expectations in the near term, with improvement likely in the second half of fiscal 2017. These factors make us somewhat cautious of the company’s performance in the near term.
Consequently, the Zacks Consensus Estimates trended downward. In the last 7 days, the Zacks Consensus Estimate for fiscal 2017 has fallen 11.5% to 23 cents while the estimate for fiscal 2018 is down 21.9% to 25 cents.
The company’s top-line performance was the saving grace in the quarter as sales beat estimates and grew year over year. This was backed by strength in both Retail Pharmacy and Pharmacy Services segments, as well as comparable sales growth.
Additionally, Rite Aid’s stringent focus on cost management and strengthening its portfolio of health and wellness services have been impressive. Its constant endeavors to enhance pharmacy and clinical services also bode well. The company remains positioned to gain from its merger deal with Walgreens Boots Alliance Inc. (WBA - Free Report) , which is anticipated to close in the second half of calendar 2016.
That said, how far the company’s strategic initiatives will help overcome the current slowdown in share price remains a wait-and-watch story. Rite Aid currently holds a Zacks Rank #4 (Sell).
Stocks to Consider
A couple of better-ranked stocks in the retail sector are Herbalife Ltd. (HLF - Free Report) and Wal-Mart Stores Inc. (WMT - Free Report) , both carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
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Rite Aid (RAD) Stock Suffers Downside: Will it Turn Around?
The stock of Rite Aid Corporation , the third largest retail drugstore in the U.S. based on revenues and the number of stores, has currently turned into a roller coaster ride as evident from its year-to-date price graph. The stock witnessed considerable upside in April on the back of its fourth quarter fiscal 2016 results, but has been on a decline since May and going down further following the recently released first-quarter fiscal 2017 results.
The stock is down about 1.2% year to date and has lost nearly 3% in 3 months' time. In the past one year, the stock has slumped nearly 11%.
RITE AID CORP Price, Consensus and EPS Surprise
RITE AID CORP Price, Consensus and EPS Surprise | RITE AID CORP Quote
The primary reason for the recent slump in the stock price is the Camp Hill, PA-based drugstore retailer’s dismal performance in the first quarter of fiscal 2017. Rite Aid’s first quarter fiscal 2017 results were a letdown as the company failed to live up to its its robust earnings surprise history. The company’s first quarter earnings missed estimates after seven quarters of consecutive beats, mainly due to a fall in adjusted EBITDA, offset by lower taxes and interest expense.
Though the quarter gained from solid performance of its Pharmacy Services segment and front-end business, along with efficient expense control, the miss was due to pharmacy reimbursement rate pressures as drug purchasing efficiencies were short of expectations.
Looking ahead, the company expects drug cost reductions to remain below expectations in the near term, with improvement likely in the second half of fiscal 2017. These factors make us somewhat cautious of the company’s performance in the near term.
Consequently, the Zacks Consensus Estimates trended downward. In the last 7 days, the Zacks Consensus Estimate for fiscal 2017 has fallen 11.5% to 23 cents while the estimate for fiscal 2018 is down 21.9% to 25 cents.
The company’s top-line performance was the saving grace in the quarter as sales beat estimates and grew year over year. This was backed by strength in both Retail Pharmacy and Pharmacy Services segments, as well as comparable sales growth.
Additionally, Rite Aid’s stringent focus on cost management and strengthening its portfolio of health and wellness services have been impressive. Its constant endeavors to enhance pharmacy and clinical services also bode well. The company remains positioned to gain from its merger deal with Walgreens Boots Alliance Inc. (WBA - Free Report) , which is anticipated to close in the second half of calendar 2016.
That said, how far the company’s strategic initiatives will help overcome the current slowdown in share price remains a wait-and-watch story. Rite Aid currently holds a Zacks Rank #4 (Sell).
Stocks to Consider
A couple of better-ranked stocks in the retail sector are Herbalife Ltd. (HLF - Free Report) and Wal-Mart Stores Inc. (WMT - Free Report) , both carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>