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Rite Aid (RAD) Focuses on Strategic Growth: Time to Hold?

Zacks

Rite Aid Corporation RAD remains confident of sustaining its growth momentum with its focus on cost management and strengthening of its portfolio of health and wellness services. Also, the company has been undertaking a number of strategies to drive growth and enhance customer experience to gain market share. Let’s delve deeper to know more about the stock.

Growth Strategies

Rite Aid remains positioned to gain from its merger with leading U.S. drugstore retailer, Walgreens Boots Alliance, Inc. WBA, which is anticipated to close by the end of Jan 2017. The drugstore behemoth thus formed will have a superior network that will cater to more health and wellness solutions both in stores and online. Also, it will help Walgreens to bring cost synergies in prices of branded and generic drugs. Rite Aid will operate as a wholly owned subsidiary of Walgreens following the closure of the deal.

Additionally, the company is focusing on remodeling its wellness stores, featuring a new Vision Center, Diabetic Diagnostic Center, Men’s Grooming, among others, to increase its market share. These newly renovated stores will tempt customers to spend more time on selecting their personal care products, thereby contributing to increased sales.

Moreover, the company has started accepting payments via digital wallets like Apple Pay, Google Wallet, and other tap and pay credit and debit cards. These endeavors are likely to provide customers a more convenient and better shopping experience.

Further, the third largest retail drugstore in the U.S. has been utilizing additional resources such as the introduction of HealthSpot telehealth booths at its Ohio pharmacies, addition of RediClinics to its stores, its Wellness+ with Plenti program, as well as the Flu Immunization program to stimulate customer demand. Also, it intends to offer cost-friendly health plans and solutions for employers, drive growth and bolster its shareholder value. We believe these programs to boost the company’s long-term profitability.

Hurdles

However, Rite Aid faces challenges related to pharmacy reimbursement rate that put pressure on its top line in the second quarter of fiscal 2017. These hurdles are anticipated to linger throughout fiscal 2017, thus raising concerns over the company’s near-term performance. Also, the company’s generic drug sales have been adversely affected by Wal-Mart Stores Inc.’s WMT strategy of entering the retail generic drug market.

RITE AID CORP Price and Consensus

RITE AID CORP Price and Consensus | RITE AID CORP Quote


Nonetheless, estimates have been largely stable ahead of the company's third-quarter earnings release. The Zacks Consensus Estimate for third-quarter fiscal 2017 is pegged at 5 cents.

Zacks Rank

Rite Aid currently has a Zacks Rank #3 (Hold). A better-ranked stock in the broader retail sector is Ross Stores, Inc. ROST, with a long-term earnings growth rate of 11.4%. It has gained nearly 29% year to date. The stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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