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Rite Aid (RAD) Up 14.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Rite Aid (RAD - Free Report) . Shares have added about 14.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Rite Aid due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Rite Aid Q3 Earnings Beat, FY19 View Narrowed

Rite Aid Corporation reported third-quarter fiscal 2019 results, wherein the top and bottom lines improved on a year-over-year basis. Also, earnings came ahead of the Zacks Consensus Estimate but sales lagged the same. Further, management narrowed its guidance for fiscal 2019.

Q3 in Detail

In the reported quarter, Rite Aid’s adjusted earnings came in at 1 cent per share, which outpaced the Zacks Consensus Estimate of a loss of 2 cents. The bottom line also came ahead of the break-even earnings per share reported a year ago.

Revenues improved 1.8% to $5,450.1 million but missed the Zacks Consensus Estimate of $5,484 million. At the Retail Pharmacy segment, third-quarter revenues rose 0.4% on account of an increase in same-store sales, partly offset by store closures. At the Pharmacy Services segment, the same metric increased 5.6% owing to increased Medicare Part D membership.

Retail Pharmacy same-store sales improved 1.6%, courtesy of a 3.1% increase in pharmacy sales and a 1.5% decrease in front-end sales. Notably, Pharmacy sales included a negative impact of nearly 108 basis points (bps) from the introduction of new generic drugs. Further, prescription count at comparable stores advanced 2.4%. Prescription sales constituted 67.6% of total drugstore sales.

Backed by increased pharmacy gross profit owing to rise in script count, Rite Aid’s adjusted EBITDA improved 0.5% year over year to $142.8 million. This was offset by lower front-end gross profit and rise in distribution costs related with the divestiture of a distribution center to Walgreens Boots Alliance. Meanwhile, adjusted EBITDA margin declined almost 10 basis points to 2.6%.
 
Further, adjusted EBITDA at the Retail Pharmacy Segment totaled $101.2 million depicting a 0.5% decline from the prior-year quarter’s tally. At the Pharmacy Services Segment, the same amounted to $41.6 million, reflecting a rise of almost 3%.

Store Update

Rite Aid renovated 21 stores in the fiscal third quarter, bringing the company’s total wellness-store count to 1,748. Further, it shuttered one store during the reported quarter, consequently taking the store count to 2,525 as of Dec 1, 2018.

Other Developments

In a separate press release, Rite Aid and McKesson Corporation announced an agreement to continue the pharmaceutical sourcing and distribution partnership for an additional 10 years through March 2029. Per the terms of the deal, McKesson will continue providing Rite Aid with sourcing and direct-to-store delivery for brand and generic pharmaceutical products. The partnership will provide Rite Aid with a combination of competitive drug pricing and operational flexibility, which will enhance shareholder value.

Financial Status

Rite Aid ended the fiscal third quarter with cash and cash equivalents of approximately $410 million, long-term debt (net of current maturities) of $3,394.5 million and total shareholders’ equity of $1,453.4 million.

Further, the company generated cash of $351.1 million from operating activities as of Dec 1, 2018.

Outlook

Rite Aid narrowed its sales, same-store sales, adjusted EBITDA and earnings view and reiterated its capital expenditure forecasts for fiscal 2019. The company narrowed its net loss expectations as well.

For fiscal 2019, Rite Aid now estimates sales of $21.8-$21.95 billion, with comps anticipated to increase in the range of 0.5-1%. Adjusted EBITDA is projected to be $545-$570 million. The company continues to anticipate capital expenditure of nearly $250 million for the fiscal year.

Earlier, Rite Aid had anticipated fiscal 2019 sales of $21.7-$22.1 billion, with comps anticipated in the range of flat to up 1%. Adjusted EBITDA was projected to be $540-$590 million.

Rite Aid now projects adjusted net (loss) income per share between a loss of 3 cents and loss of 1 cent compared with the prior guidance of adjusted net loss per share of 3 cents to income of 1 cent.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -400% due to these changes.

VGM Scores

Currently, Rite Aid has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Rite Aid has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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