Consumer Products

Rite Aid Joins Serious Turnaround List for 2013

It was just at the end of last week that we offered up a list of the greatest turnaround prospects for 2013. Rite Aid Corp. (NYSE: RAD) would have been on the list, but its shares had just been clipped hard in the days prior due to weak store sales trends. Now Rite Aid may be closer to its turnaround than it was before after the company’s first annual profit in about six years or so.

The report was actually the second profitable report in a row, aided by generic drugs and prescriptions. Lower expenses then added as well. While fourth-quarter earnings came to $0.13 per share versus a net loss of $0.18 per share a year earlier, sales were down 10% to less than $6.5 billion. The company is facing a challenge now on the sales front due to front-end being marginally up and pharmacy sales being down. That is somewhat a change from brand drugs to generics because the prescriptions filled were up more than 3%.

Where this story gets more interesting to us is that Rite Aid is targeting a profitable year ahead with earnings of $0.04 to $0.20 per share and sales of $24.9 billion to $25.3 billion.

Our biggest thing to say here is that Rite Aid shareholders have substantial upside possibilities if the drug store chain can keep its earnings driving north and can somehow keep lowering its costs.

Walgreen Co. (NYSE: WAG) has a market cap north of $46 billion and annual sales ahead are expected to be about $72.6 billion, according to Thomson Reuters. That comes to about 0.63-times revenue. At $3.28 in projected earnings per share, this has a projected P/E ratio of almost 15. Walgreen also has years of profitability.

Now take the case of Rite Aid. Its market cap is $1.9 billion or so, and that is after today’s 17% gain to $2.10. If you take $25 billion in projected sales against a $1.9 billion market cap, then Rite Aid only trades at just under 0.08 times sales. Of course there is a huge disparity between earnings with Rite Aid barely being profitable in one year and having years and years of losses, the numbers just cannot be compared. If you still try to make the numbers go head to head, that values each dollar of sales at Walgreen worth about eight times the same dollar valuation as Rite Aid.

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