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Where Does Rite Aid (RAD) Stand After Mixed Q2 Results?

RAD CVS HLF WBA

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Drugstore retailer, Rite Aid Corporation (RAD - Free Report) has been a mixed bag for quite some time now as its stock price has been unstable. However, the stock has managed to gain over 3% year-to-date and has surged nearly 19% in the past year.

The primary reason for the not-so-good performance of this Camp Hill, PA-based retailer is the dismal quarterly results over the past two quarters. The company’s otherwise strong surprise trend has turned negative due to the earnings miss in the first quarter of fiscal 2017 followed by in line results in the second quarter. Evidently, the company has recorded an average negative surprise of 10.8% in the trailing four quarters.

RITE AID CORP Price and Consensus

RITE AID CORP Price and Consensus | RITE AID CORP Quote

The recent negative earnings trend is mainly attributed to pharmacy reimbursement rate pressures, as drug purchasing efficiencies fell short of expectations. This offset the company’s otherwise encouraging performances at its Pharmacy Services segment and its front-end business. Moreover, the company’s results benefited from an improvement in prescription drug costs.

However, the company stated that challenges relating to the pharmacy reimbursement rate are expected to continue through the rest of the fiscal year. 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 the third quarter plunged 16.7% to 5 cents per share while the estimate for fiscal 2017 is down 7.1% to 13 cents.

Further, this Zacks Rank #4 (Sell) company’s top line results were also mixed as total revenue rose 4.8% year over year but missed our estimate mainly due to lower Retail Pharmacy segment revenues. Additionally, the company’s comps trend continued to be negative owing to a fall in pharmacy comps neutralized by a marginal rise in front-end comps.

However, Rite Aid’s stringent focus on cost management and strengthening its portfolio of health along with wellness services remains impressive. Its constant endeavors to enhance pharmacy and clinical services also bode well. Moreover, the company remains positioned to gain from its merger with Walgreens Boots Alliance Inc. (WBA - Free Report) , which is anticipated to close in the second half of calendar 2016.

Stocks to Consider

A better-ranked stocks in the retail-drugstore industry is Herbalife Ltd. (HLF - Free Report) , with a Zacks Rank #2 (Buy). Herbalife looks like a promising investment, with a positive surprise trend over the last four quarters. The average beat for the trailing four quarters is 21.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors may also consider the one of the largest stock in the retail-drugstore industry by size, CVS Health Corporation (CVS - Free Report) , which sports a Zacks Rank #3 (Hold). The company has witnessed positive estimate revisions in the last 60 days and has to its credit a favorable surprise trend, with an average beat of 0.6% in the trailing four quarters.

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