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Rite Aid (RAD) Looks Good on Strategic Growth Initiatives - Analyst Blog

Drug store operator, Rite Aid Corp. (RAD) remains focused on increasing return on investment by persistently enhancing its pharmacy and clinical services through the Rite Aid Health Alliance and its Wellness+ customer loyalty program.  

Moreover, in order to increase its market share in an extremely competitive industry, the company has been remodeling its wellness stores. The new model of these wellness stores allure customers to spend more time on selecting their personal care products, enabling the company to generate increased sales.

Further, this Zacks Rank #1(Strong Buy) company has been riding on the success of its Health Alliance Program, which commenced in Mar 2014. Through this, the company works with different healthcare providers to offer holistic care to patients suffering from chronic or poly-chronic health problems. The company has been aggressively focusing on the expansion of the Health Alliance Program across all its stores to improve both customer traffic and the top line.

Moreover, Rite Aid, which competes with Herbalife Ltd. (HLF), is committed toward expanding its business and market share through alliances and lucrative acquisition opportunities, as evident from its partnerships with GNC Holdings Inc. and RediClinic.

We believe that these measures will enable the company to broaden its customer base while enhancing top and bottom line performances. This is reflected in the company’s recently reported third-quarter fiscal 2015 results, wherein both the top and the bottom line grew year over year and beat the Zacks Consensus Estimate.

The company’s earnings of 10 cents per share in the quarter rose over two-fold from the prior-year quarter and were double the Zacks Consensus Estimate. Rite Aid's third-quarter revenue increased 5.3% year over year to $6,692.3 million and surpassed the Zacks Consensus Estimate of $6,643 million.

Following the strong third-quarter results, the company raised its earnings and sales forecast for fiscal 2015 that drove estimates upward. The Zacks Consensus Estimate for fiscal 2015 and 2016 rose 21.4% and 16.2%, respectively.

We also remain optimistic on the future performance of the nation’s third-largest drugstore chain in terms of store count, following Walgreens Boots Alliance Inc. (WBA) and CVS Health Corporation (CVS), on the back of its positive earnings surprise history. The company has surpassed the Zacks Consensus Estimate in three of the trailing four quarters, posting an average positive surprise of 91.7%.


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