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Here's Why Rite Aid (RAD) Marching Ahead of the Industry

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Rite Aid Corporation (RAD - Free Report) has been benefiting from strength in Elixir, rise in pharmacy sales and robust online performance. Driven by this, the company reported impressive third-quarter fiscal 2021 results. Also, solid performance in the Retail Pharmacy and Pharmacy Services segments acted as upsides. As a result, management updated its guidance for fiscal 2021, which seems encouraging.

Notably, shares of this Zacks Rank #2 (Buy) stock has surged 70.5% in the past three months compared with the industry’s growth of 23.5% and against the Retail-Wholesale sector’s decline of 2.5%.

That said, let’s delve into the factors that make Rite Aid a promising bet.

Factors Narrating Rite Aid’s Growth Story

Given the COVID-19 situation, Rite Aid has been instrumental in serving the society through its products, delivery facilities and several testing sites. Since the onset of the pandemic, the company has been providing home delivery services to customers with an eligible prescription, with the benefit of zero delivery fees.

Also, pick up services for prescriptions and over-the-counter products as well as the drive-through option at more than 50% of its retail locations are in place. Moreover, it has launched the Buy Online Pickup In Store initiative in a bid to offer better drive-through and curbside pickup options.

Apart from these, the company expanded the Instacart delivery facility and received positive feedback for the same. Driven by these efforts, online revenues skyrocketed 225% year over year in the fiscal third quarter on the back of a revamped website and mobile app.

Earlier, the company partnered with ScriptDrop to expedite the prescription delivery process. This facility is being rolled out in a phased manner and will be completed by the end of fiscal 2021. Also, the launch of Rite Aid Virtual Care, driven by strong demand for Tele Health, bodes well.

Moving on, it has already reached the milestone of 1 million COVID-19 tests in partnership with the U.S. Department of Health and Human Services. Rite Aid is joining forces with the CDC to distribute vaccines for the second phase of the rollout.

Further, Rite Aid remains focused on strengthening its foothold in mid-market PBM, innovating across its retail and mail-order pharmacy channels, enhancing the in-store experience by curated digital offerings, improving merchandises and rebranding its image with a new logo. Keeping in these lines, the company revamped more than 700 stores and is likely to complete the rest in 2021. It also launched its first three Stores of the Future and intends to open more in the fiscal fourth quarter.

Moreover, the acquisition of Bartell will help expand the customer base. That said, it is on track with the new RxEvolution strategy, which is likely to help Rite Aid become a leader in mid-market PBM.

Management is optimistic about the progress of Elixir, which now includes a new leadership team, new products, a new range of digital capabilities and the integration of the assets between Elixir and Rite Aid. Encouragingly, Elixir recorded revenue growth of 29% year over year during the fiscal third quarter, driven by a rise in Medicare Part D membership. The company is on track with plans to restructure the Elixir insurance business, which is likely to be accretive to the business in fiscal 2022.

 

Bottom Line

Owing to such well-chalked endeavors, the company revised its guidance for fiscal 2021. It now expects revenues to be $23.9-$24.2 billion, whose midpoint of $24.1 billion is almost in line with the Zacks Consensus Estimate. Same-store sales are expected to grow 3.5-4.5%. The bottom line is envisioned between 45-85 cents, whose midpoint of 65 cents comes ahead of the Zacks Consensus Estimate, which is currently pegged at 64 cents.

Thus, we believe that strength in Elixir, solid performance in PBM and a robust e-commerce business will help Rite Aid keep its stellar show on.

Stocks to Consider

Target Corp. (TGT - Free Report) has an impressive long-term earnings growth rate of 8.5% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The TJX Companies (TJX - Free Report) , also a Zacks Rank #1 stock, has an expected long-term earnings growth rate of 10.5%.

Dollar General Corp. (DG - Free Report) , which carries a Zacks Rank #2, has an expected long-term earnings growth rate of 13.7%.

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