Analyst raises shares of Rite Aid to 'outperform'

Analyst raises rating on Rite Aid shares to 'outperform' from 'market perform'

Associated Press

Shares of Rite Aid Corp. soared Friday, a day after the nation's third-largest drugstore chain reported its first annual profit in six years.

THE SPARK: The Camp Hill, Pa., company said Thursday that it earned $124.4 million, or 13 cents per share, in its fiscal fourth quarter, as an increase in generic drug sales helped profitability. That represented its second-straight quarterly profit.

Revenue fell about 10 percent to $6.45 billion compared with last year's quarter, which had an additional week. The performance topped analyst expectations.

For the full fiscal year, the company earned $107.5 million, or 12 cents per share, on $25.39 billion in revenue.

For fiscal 2014, it expects net income to range between 4 cents and 20 cents per share, on $24.9 billion to $25.3 billion in revenue.

THE BIG PICTURE: Rite Aid runs more than 4,600 drugstores in 31 states and the District of Columbia. It trails only Walgreen Co. and CVS Caremark Corp. in size.

Rite Aid has been working to clean up its performance by closing hundreds of under-performing stores in recent years and installing a new wellness format in others. These stores have more organic food and natural personal care products and employees who can help customers find vitamins and nutritional supplements.

The company has converted nearly 800 stores to this format and plans to do 400 in fiscal 2014.

THE ANALYSIS: The drugstore chain will start reaping benefits in 2014 from a debt refinancing and will start generating meaningful cash flow, Raymond James analyst John W. Ransom said in a research note. He also cited prescription growth and the company's growing customer loyalty program as other beneficial factors.

Ransom raised his rating on the stock to "Outperform" from "Market Perform."

SHARE ACTION: Up 9.4 percent, or 20 cents, to $2.32 after rising as high as $2.33, its highest level since September 2009. Meanwhile broader trading indexes fell slightly Friday afternoon. Rite Aid's stock price has more than doubled since December, when it reported its first quarterly profit since May, 2007.

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