Can Rite Aid Offer Your Portfolio a Remedy?

With shares of Rite Aid Corporation (NYSE:RAD) trading at around $1.23, is RAD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

The year is 2007. You’re sitting on the pool deck of your vacation home sipping on a cocktail. It’s a time of wealth, happiness, and all-time highs for the stock market. It’s also the last time Rite Aid showed a profit. That’s pretty sad. However, this old dog is beginning to recover, and it may have even discovered the fountain of youth.

If you looked at the trend for the annual EPS, you could actually see that a recovery was taking place. It might not have been clearly evident because the numbers were still in negative territory, but a trend is a trend regardless of whether there is a plus or minus sign in front of the number. In simplest terms, EPS has been moving in the right direction since 2009. On a quarterly basis, we have also seen momentum heading in the right direction.

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As you might already know, Rite Aid beat expectations for Q3. Actually, Rite Aid crushed expectations. EPS came in at 0.04 vs. an expectation of -0.05. Revenue was in-line with expectations at $6.24 billion. Perhaps even more important was the guidance. Rite Aid guided higher. Next year, the expectation is an EPS of 0.14.

The reasons for this improvement include increased front-end sales, prescription growth, and new generic medications. The latter has led to higher pharmacy gross margins. In regards to prescriptions, counts have now been up eight quarters in a row. In addition to that, net margin has improved to 1.00 percent.

Analysts are beginning to jump on the bandwagon, and the average target price is now $1.70. Is this all false hope due to short-term success, or is Rite Aid’s turnaround for real? Let’s take a look at some numbers to get a better idea.