Monthly Archives: December 2014

AOL: Zacks’ Bear of the Day Play

There are times when I look at the list of Zacks Rank #5 (Strong Sell) stocks and I see a theme. Right now the theme is oil stocks and anything related to the oil patch, as those stocks are seeing lowered earnings estimates as the price of crude continues to fall. But a different name stood out at me on the list of roughly 200 #5’s.

AOL (AOLSnapshot Report) is now a Zacks Rank #5 (Strong Sell) while I see a number of other internet names that have much higher Zacks Rank. This is clearly not a case of a sector in turmoil, but rather a stock that is seeing analysts cut earnings estimates.

Company Description

AOL, formerly America Online, is an online media company that provides internet search and content as well as ad serving technology. The company was founded in 1985 and is headquartered in New York, New York.

A Few Recent Misses

AOL has missed the Zacks Consensus Estimate in two of the last three quarters, which is a departure from the recent history of beating the number. Prior to the recent misses AOL was on a roll of 9 consecutive beats of the Zacks Consensus Estimate.

Tax Loss Selling

At the end of the year, I take a look at stocks that could see a pile-on effect of tax loss selling and lowered earnings estimates. This is not the case for AOL as the stock is more or less flat with the start of the year, so there is no real benefit to any tax loss selling. In fact, it is almost the opposite.

Chart

The price and consensus chart for AOL has a strange phenomenon. There is a jolt higher by the 2012 consensus line – which is likely the result of selling the IP to Microsoft. Since that time earnings have not really done much. Lately, we are seeing estimates slide and that is the reason AOL has dropped to a Zacks Rank #5 (Strong Sell)

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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

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Lifelock: Zacks’ Bull of the Day Play

Lifelock (LOCKSnapshot Report) with all the college football games coming up, some gamblers will be looking for a “lock” or a play that is as close to a sure thing as you can get. My personal “lock” for that is taking Ohio State and the points. LOCK is a Zacks Rank #2 (Buy) and while it has nothing to do with gambling or college football it is a great play on personal security.

Hack Attacks

An idea that might be lost in the recent Sony hack was that a list of employees and their social security numbers was published by the hackers. This exposes those emplpoyees in a big way and should lead to the company picking up the tab for Lifelock services.

The number of companies that were hacked last year was pretty big, but the number of consumers that were exposed is even bigger. Companies like Home Depot and Target noted that millions of their customers credit cards were compromised, but what if the same thing happens to a bank?

Company Description

LifeLock provides identity theft protection services for consumers as well as fraud and risk solutions for enterprises in the United States. It protects consumer subscribers through monitoring identity-related events, such as new account openings and credit-related applications. LifeLock was founded in 2005 and is headquartered in Tempe, Arizona.

Earnings History

The Zacks Research System (ZRS) gives me all the data that I use to review stocks. It has data on 9 earnings reports for LOCK, and in all of them, the company has beaten the Zacks Consensus Estimate. Most were by a penny or maybe two, but the most recent beat is the one that catches my eye. The company reported earnings of $0.12 when the Zacks Consensus Estimate called for $0.08. That four cent beat translates into a 50% positive earnings surprise. The company also beat on the topline in each of the last four quarters as well.

Estimates

For most of the year, the Zacks Consensus Estimate for 2014 and 2015 was heading the wrong way. That all changed with the most recent beat in October, when the Zacks Consensus Estimate for 2014 moved from $0.19 up to $0.25. At the same time, the 2015 Zacks Consensus Estimate jumped from $0.31 to $0.45. Those are some big moves for a four cent beat, and that suggests that the company has basically reached a tipping point. Every penny of earnings could not start meaning more and more down the road as they reach critical mass in terms of customers and revenue.

Valuation

Right now, the valuation for LOCK is rather rich. The trailing PE of 75x is just about triple the industry average, which is quite a bit. The forward PE of 69x is also crazy high right now compared to the 23x industry average. The premium continues to be seen in the price to book, with a 5x multiple compared to a 4.5x industry average and the price to sales multiple is also sharply higher than the industry average at 3.8x compared to 2.9x.

The reason for the premium valuation is that LOCK is growing the topline at 28% this year and 20% next year vs 1% this and 7% next year for the industry average. Earnings growth is slated to be 80% next year, more than 5 times as high as the 14.5% industry average. So this is going to be a big growth story.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #2 (Buy) we see that estimates are moving higher despite its limited public history.

Follow Brian Bolan on twitter at @BBolan1

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Smith & Wesson: Zacks’ Bear of the Day Play

Over the past several years, gun manufacturers have seen their sales boom due to several factors, but it appears as though the golden age of gun purchases is fading.  In 2013, more than 21 million applications were put through the National Instant Criminal Background Check System, which was almost 8% higher than 2012, and marked the 11 consecutive year the number increased.  But in 2014, gun manufacturers saw a sizable decline in overall gun sales, and background checks.  This has caused a significant buildup in inventories, especially at competitors of Smith & Wesson.

Smith & Wesson (SWHCSnapshot Report) is one of the world’s leading producers of quality handguns, law enforcement products and firearm safety and security products.  This 150 year old company also manufactures and markets Smith & Wesson handcuffs, and other specialized metal working products.

Recent Earnings Data

During the gun boom over the past two plus years, Smith & Wesson has performed very well, and has posted a four quarter average positive earnings surprise of 15.82%.  But in the most recent quarter, management saw total revenues decline 21% year over year due to waning sales and difficult comps.  Specifically, handgun sales dropped 15%, and long gun sales declined 50% year over year.

While sales have begun to slump, inventories have begun to grow.  While the inventory situation is not as bad for Smith & Wesson as it is for their competitors, it will negatively impact Smith & Wesson nonetheless.  This is due to the fact that the competition, who has a large inventory, has begun to increase promotional activity (sales) in order to reduce their inventory, which is slowing sales at Smith & Wesson.

As you can see from the Price and Consensus table below, earnings expectations for Smith & Wesson are declining, and are expected to continue through 2015.

Declining Estimates

The table below shows how the Zacks Consensus Earnings Estimates has changed over the past 60 days for Smith & Wesson.  As you can see the revenue declines, and inventory issues are negatively impacting Smith & Wesson’s consensus estimates out through 2016.

Bottom Line

Declining demand, growing inventories, and competition discounts continue to pressure both the top and bottom lines for Smith & Wesson.  Unfortunately, for Smith & Wesson, this pressure could negatively impact sales through the first half of 2015.

Other Stocks to Consider

If you are inclined to invest in the Leisure & Recreational Product segment, Black Diamond (BDESnapshot Report), Zacks Rank #1 (Strong Buy), or Polaris Industries (PIISnapshot Report), Zacks Rank #2 (Buy) are worth looking into.

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Avago Tech: Zacks’ Bull of the Day Play

In early December, Avago Technologies (AVGOAnalyst Report) crushed the Zacks Consensus Earnings and Revenue Estimates mainly due to their wireless communications division, which saw 73% growth quarter over quarter.  Further, growing demand for BAW filters in China and India helped boost growth as well.

Avago Technologies is a leading designer, developer, and global supplier of a broad range of analog, digital, mixed signal and optoelectronics components and subsystems with a focus in III-V compound semiconductor design and processing.  The company serves four primary target markets, Wireless communications, Wired Infrastructure, Enterprise storage, and Industrial and Other.

Increasing Estimates

The higher than expected wireless growth, 4G deployment and adoption of 4G smartphones in China and India, and high volume shipments and content gains due to Apple’s IPhone 6/6+ have caused management to increase revenue guidance for Q1 2015.  Management increased Q1 15 revenue guidance to $1.64 billion, up from the Zacks Consensus Estimate of $1.51 billion due to anticipated tailwinds throughout Q1 2015 from the sales of Apple’s IPhone 6/6+.

Price and Consensus

The table below shows the Price and Consensus Estimates for Avago Tech going through 2015.  As you can see the estimates really began to jump in the mid-part of 2014, and the stock price has subsequently appreciated.

Guidance Increasing

Over the past 30 days, the Zacks Consensus Earnings Estimates for Q1 15, Q2 15, FY 15, and FY 16 have all significantly increased; Q1 15 increased from $1.50 to $1.78, Q2 15 rose from $1.32 to $1.50, FY 15 climbed up from $5.87 to $6.67, and FY 16 increased from $6.39 to $7.07.

Positive Earnings Surprise

Avago has posted a positive earnings surprise for 6 out of the last 7 quarters with a four quarter average positive surprise of 15.33%, indicating that the company tends to solidly beat earnings estimates.  Further, the company has beat the Zacks Revenues Estimates 5 out of the last 7 quarters.

As you can see in the table below, AVGO has seen solid price appreciation in their last 5 earnings beats, and with the solid deployment of the IPhone 6/6+, the expectations are continuing to raise even higher.

Bottom Line

After posting solid fourth quarter 2014 earnings and revenues, management is anticipating strong tailwinds for Q1 2015 due to the following; continued sales from IPhone 6/6+, increasing traction with 4G in China and India, and growing demand for their BAW filters across the world.  Therefore, Avago Technologies is the Zacks’s Bull of the Day, and should see continued growth into the new-year.

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Francesca’s: Zacks’ Bear of Day Play

Francesca’s Holdings Corporation (FRANSnapshot Report) has a new CEO but comparable-store-sales continue to slide. Can this Zacks Rank #5 (Strong Sell) retailer turn it around?

Francesca’s Holdings is a specialty woman’s retailer, operating 538 boutiques in 47 states and the District of Columbia carrying apparel, shoes, jewelry and accessories. It also operates an ecommerce site on francescas.com.

 

Retail Veteran Announced as New CEO

On Dec 5, Francesca’s announced that Michael Barnes, the former CEO of Signet Jewelers, would become CEO of Francesca’s. He was also one of the original employees at Fossil and spent more than 25 years there growing the brand.

Francesca’s has also been on a growth spurt, with dozens of store openings and a newly revamped web site.

Comparable Store Sales Fell Again

On Dec 10, Francesca’s announced its fiscal 2014 third quarter results. While it met the Zacks Consensus Estimate of $0.17, same-store sales continued to slide.

In prior quarters, the company had blamed it on the poor weather and high inventories. But the weather wasn’t a factor in the third quarter of this year.

Comparable-store-sales fell 6% but one bright spot was the direct-to-consumer sales, which jumped 53% from the year ago quarter. Through the third quarter, direct-to-consumer sales were up 76% over 2013.

However, as many retailers have been reporting, the environment remains increasingly promotional. Gross profit decreased to 47.3% from 50.7% in the third quarter of the prior year due to increased markdowns and continuing promotions.

The company also continued to open new stores, opening 12 boutiques in the quarter. It has added 87 new boutiques through the third quarter.

 

It’s also been opening outlets and has opened 13 of those this year for a total of 16 stores.

Outlook for the Fourth Quarter is Still Grim

Citing the highly promotional holiday retail environment, Francesca’s warned about the fourth quarter. It said its apparel business remained “challenged” and expected aggressive markdowns in order to clear inventory.

It saw a 475 to 525 basis points decrease in gross profit margin in the fourth quarter compared to a year ago.

Comparable-store-sales were expected to fall between 5% and 10% for the quarter. For the full year, comparable-store-sales were expected to fall 2% compared to the prior year.

It was expected to open just one new boutique in the fourth quarter.

Earnings Expected to Slide

The reason Francesca’s is a Zacks Rank #5 (Strong Sell) is because analysts have been cutting estimates.

8 estimates were lowered for fiscal 2014 in the last 30 days. The 2014 Zacks Consensus Estimate has fallen to $0.79 from $0.92 in the last month. That’s an earnings decline of 24% from fiscal 2013 as the company earned $1.05 last year.

Fiscal 2015 isn’t looking much better. 9 estimates have been cut in the last 30 days.

The new CEO has only been on the job just a few weeks so it will take some time to institute changes. But Francesca’s is clearly going the wrong direction.

Shares Jump on Hopes of a Turn Around

With news of the new CEO, Francesca’s shares have actually rallied off of 2-year lows.

But if you think all of its problems means its a hidden gem, you’d be wrong.

You’re not going to get a bargain. Francesca’s is trading with a forward P/E of 20.5 which is well above the average of the S&P 500 which is 18x.

Specialty retail is tough right now. If you must buy a company in that industry, you might want to consider Deckers Outdoor Corp. (DECKAnalyst Report) which makes UGGs. It is a Zacks Rank #2 (Strong Buy) and analysts expect earnings growth of 14% this year and another 18.8% next year.

It’s even trading with a cheaper valuation than Francesca’s, with a forward P/E of just 19.3.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

Spirit AeroSystems: Zacks’ Bull of the Day Play

Spirit AeroSystems Holdings (SPRSnapshot Report) delivered a strong “beat and raise” on October 31 that prompted analysts to revise their estimates significantly higher for both 2014 and 2015. This drove the stock to a Zacks Rank #1 (Strong Buy).

Despite strong earnings momentum, shares trade at a significant discount to their peers on two key valuation multiples.

 

Spirit AeroSystems Holdings is one of the largest independent non-OEM (original equipment manufacturer) aircraft parts designers and manufacturers of commercial aerostructures in the world. It is also one of the largest independent suppliers of aerostructures to the two largest aircraft OEMs in the world: Airbus and Boeing.

Aerostructures are structural components, such as fuselage systems, propulsion systems and wing systems for commercial and military aircraft.

The company reports its results primarily in three segments:

  • Fuselage Systems (49% of total revenue year-to-date)
  • Propulsion Systems (26%), and
  • Wing Systems (25%)

Third Quarter Results

Spirit AeroSystems delivered better-than-expected third quarter results on October 31. Adjusted earnings per share came in at $0.90, beating the Zacks Consensus Estimate of $0.75. It was a 17% increase over adjusted EPS in the same quarter last year.

Revenues rose 13% to $1.693 billion, which was in-line with consensus, due to higher production deliveries. Revenue in the Fuselage Systems segment rose 13% while the Propulsion Systems segment saw top-line growth of 14%. Wing Systems grew revenue by 12%.

Operating margins expanded in both the Fuselage and Wing Systems segments.

Estimates Rising

Following strong Q3 results, management raised its full year guidance for both EPS and free cash flow. This prompted analysts to revise their estimates higher too, sending the stock to a Zacks Rank of 1 (Strong Buy).

 

The 2014 Zacks Consensus Estimate is now $4.04, up from $3.56 before the report. The 2015 consensus increased from $3.39 to $3.73 over the same period.

Reasonable Valuation

The valuation picture looks very reasonable for Spirit AeroSystems. Shares trade around 11x 12-month forward earnings, a significant discount to the industry median of 16x. And its enterprise value to EBITDA multiple of 6 is also below the peer group multiple of 7.

If Spirit AeroSystems can continue to beat expectations, these valuation multiples could expand significantly.

The Bottom Line

With earnings estimates rising, and with valuation still reasonable, Spirit AeroSystems offers investors attractive upside potential.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.

Macquarie: Zacks’ Bear of the Day Play

For today’s Bear of the Day I wanted to do something different. Rather than find a company with a poor Zacks Rank that’s been beaten down, I thought I would experiment a bit. Today I ran a screen with the same criteria I use to find great momentum stocks, only I flipped it on its head a bit. While I kept the technical parts of the screen the same, I flipped the other parts on the head. The goal of this is to find a stock that has seen its price has run up while estimates have come down. I want a stock within earshot of a fresh 52-week high that is also a Zacks Rank #5 (Strong Sell) and perhaps may be running out of gas. I’m not here to tell you it’s time to short, I’m here to warn you just in case you’re long and don’t have your risk parameters in place.

Today’s Bear of the Day is Macquarie Infrastructure Company (MICSnapshot Report). Macquarie is a Zacks Rank #5 (Strong Sell) that owns, operates, and invests in a diversified group of infrastructure businesses in the United States. This infrastructure includes one of the largest bulk liquid terminals businesses, an airport service business, a gas processing and distribution business, and a portfolio of contracted power and energy facilities.

MIC’s airport services business, Atlantic Aviation, provides fuel and fuel-related services, as well as terminal and hangar operations to businesses and individuals in the private jet segment of general non-commercial aviation. Their bulk liquid terminals business is the largest independent bulk liquid business the US. Operating under International-Matex Tank Terminals, the company owns and operates 12 terminals and provides storage and logistics services including more than 45 million barrels of liquid petroleum, chemical and agricultural product tankage. Through Hawai’iGAS the company operates the only utility pipeline gas distribution on the Hawaiian Islands while their contracted power and energy segment invests in solar and wind facilities in the US Southwest.

With businesses like that, it’s easy to see why the market is bullish. However, analysts have had a different opinion of the company. For the current quarter, analysts have dropped estimates from 69 cents all the way down to 32 cents over the last 60 days. For next year’s numbers, three analysts have slashed estimates from $2.52 all the way down to $2.17.

The estimate revisions to the downside come on the heels of two very disappointing quarterly earnings reports. Q2 2014 earnings came in at 19 cents versus consensus expectations for 28 cents. Q3 the disappointment deepened with a 50 cent loss coming for the company in the face of expectations for a 45 cent gain.

The stock has held up considerably well during this year. The rally started early in the year with the stock trading in the low $50s in March. Off those lows the stock ran up to a fresh 52 high of $73.47 in July. But after some huge volume days in the summer it seems like the buying was exhausted. A short consolidation during August was met with a fresh leg lower, taking the stock to an October low of $62.58.

One more rally saw the stock retest the 52-week high. But the rally ran out of buyers and in November the stock struggled before opening December with yet another leg lower. With the stochastics near 80 in overbought territory and the stock trading right on the 20 day moving average it looks like this thing may be rolling over again. A failure here puts the October low as a short-term target for the stock, with the bottom of the July gap near $61 highly likely.

Investors looking to buy other companies within the diversified operations industry can look at Zacks Rank #1 (Strong Buy) Fed Signal (FSSSnapshot Report) or Zacks Rank #2 (Buy) Carlisle (CSLSnapshot Report).

Cross Country: Zacks’ Bull of the Day Play

With the Dow breaking on through 18,000 it’s easy to be bullish on the market. The American consumer is back, oil prices are cheap, and we’re looking forward to a year full of winners for 2015. With today’s Bull of the Day I wanted to find a stock that can benefit from a continued rebound in the US. As unemployment continues to creep lower and higher paying jobs start popping up the country is looking forward to good times ahead. I wanted to find us a stock in an industry that would benefit from this boom.

Today’s pick is in the staffing industry that currently sits in the Top 5% of our Zacks Industry Rank. Cross Country Healthcare (CCRNSnapshot Report) is a Zacks Rank #1 (Strong Buy) with a great chart that’s breaking out to the upside. CCRN is a leader in healthcare staffing with a primary focus on providing nurse and allied and physician staffing services to the healthcare market.

Three analyst estimate revisions to the upside for the current quarter and next year are a big reason why the stock is a Zacks Rank #1 (Strong Buy). The bullish adjustments have pushed consensus for the current quarter up from 3 cents to 5 cents and for the next year up from 28 cents to 31 cents.

Adding to the revisions is the fact that the company has surprised to the upside the last two quarters. Q2 numbers saw a 2 cent beat with the company turning a 1 cent profit while Q3 beat by 5 cents at 7 cents per share. The company reports Q4 earnings on March 16th, 2015.

After reaching a fresh 52-week high of $11.54 on January 28, 2014, CCRN lost momentum and the stock retreated. The first close below the 25×5 happened on February 5th as the stock also broke $10. From there a small consolidation was followed by a disastrous sell-off on heavy volume March 6th. Over 2 million shares traded hands on what turned out to be the busiest day of the year for the stock as is shed over 20% on the session.

A steady downtrend ensued and CCRN saw any attempt to rebound thwarted below the downward sloping 25×5. Over the period from March through May CCRN remained heavily oversold. Stochastics lingered below 20 for most of that time and the Commodity Channel Index barely ever broke above zero.

That all changed in June when a three day rally broke Cross Country Healthcare out of its malaise. A rally began that’s seen the stock come down to rest the 25×5 only on a few occasions. The pullbacks have been brief and shallow along the way with the most violent of which being an intraday move August 27th that saw the stock trade down to $6.73 before rallying later in the session to close well above $8.

Good jobs data may be helping the stock along and the last couple weeks we’ve seen some remarkable moves. After getting down to $10.50 on Tuesday the 16th CCRN has rallied considerably and after the huge day it had Monday is now trading within a few ticks of its 52-week high. Volume has remained relatively light the last couple of days except Monday saw a big jump in shares traded with 900k trading hands.

PHH Corp: Zacks’ Bear of the Day Play

PHH Corp (PHH) provides outsourced solutions to financial institutions, real estate companies, credit unions, corporations and government agencies through its mortgage subsidiary. They are one of the top 10 originators of retail residential mortgages in the country. They also provide home financing directly to consumers.

In July, they completed the sale of their fleet management services business. The company was founded in 1946 and is currently headquartered in Mount Laurel, New Jersey.

Disappointing Third Quarter Results

On November 4, the company reported its financial results for Q3 2014. Net loss from continuing operations (excluding gains from the sale of fleet management business) was $88 million or $1.64 per share. Core loss (excluding unfavorable market related mortgage servicing rights fair value adjustment) came in at $1.19 per share. This was significantly worse than the Zacks Consensus Estimate for a loss of $0.23 per share.

Mortgage Production segment reported a loss of $28 million, compared to a loss of $27 million in the second quarter, primarily due to a lower gain on mortgage loans partially offset by growth in mortgage fees. Mortgage Servicing segment’s loss in the third quarter of 2014 was $71 million, compared to a profit of $10 million in the previous quarter.

Downwards Revisions

Due to disappointing results, quarterly and annual estimates have been revised sharply downwards in the past few weeks by analysts.

Zacks Consensus Estimate for the current year now stands at ($2.41) per share versus ($1.00) per share, while the next year’s Consensus Estimate is $0.61 per share now, down from $1.01 per share, 60 days ago.

The following “Price and Consensus” chart shows the negative earnings momentum for the company:

 

Better Play?

 

Investors looking to play the mortgage servicing industry could look at Essent Group, which currently enjoys Zacks Rank # 1 (Strong Buy). The company delivered a strong beat for the third quarter and has seen a nice increase in earnings estimates by analysts. But we may add that the industry in general faces a number of near-term challenges.

The Bottom Line
PHH is currently Zacks Rank # 5 (Strong Sell) stock and the mortgage servicing industry currently has a Zacks Industry rank of 199 out of 265 (bottom 25%). Both indicate strong chances of underperformance in the short term.

The sale of the fleet business which was the major source for stable cash flows for the company leaves it with the loss making mortgage business, which does not show any signs of turning around soon.  Further due to lack of visibility in the short-to-mid term with ongoing restructuring, the investors may like to avoid the stock for the time being.

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Rite Aid: Zacks’ Bull of the Day Play

Rite Aid’s shares surged after the company reported excellent results and raised its guidance. As the turnaround appears to be back on track on now, shares are likely to continue to move higher.

Headquartered in Camp Hill, Pennsylvania, Rite Aid Corporation (RAD) is the third largest retail drugstore in the U.S., based on revenues. The company has about 4,600 stores across the country.

Excellent Results and Raised Guidance

Rite Aid reported its third quarter fiscal 2015 results on December 18. Revenues for the quarter increased 5.3% to $6.7 billion thanks mainly to 5.4% increase in same store sales from the previous year quarter.

Net income came in at $104.8 million or $0.10 per share, up from $71.5 million or $0.04 per share, a year ago and much ahead of the Zacks Consensus Estimate of $0.05 per share.

Based on third quarter results, the management raised their guidance for fiscal 2015. They now expect net income to be between $315 million and $370 million or between $0.31 and $0.37 per share. The management expects script growth to benefit from the Affordable Care Act, favorable demographics filed by acquisitions and growth in immunizations.

This guidance was significantly better than the previous guidance of $0.22 – $0.33 per share and the Zacks Consensus Estimate of $0.30 per share.

The partnership with McKesson for drug distribution and purchasing process now appears to be paying dividends as all stores were converted to this new distribution process by early in the third quarter.

Estimates Revisions

As a result of a strong quarterly report and updated guidance, analysts have started raising their estimates for RAD. Zacks Consensus Estimate for the current fiscal year now stands at $0.33 per share up from $0.28 per share, 7 days ago. The consensus estimate for the next fiscal year is currently unchanged at $0.37 per share but is likely to move higher as more analysts update their research reports and estimates.

 

The following “Price and Consensus” chart showing the positive earnings momentum for the company.

RAD has beaten estimates in three out of last four quarters (one meet), with an average quarterly surprise of 92%.

Growth Drivers

Ageing US Population: US population has been ageing fast and Rite Aid is well positioned to benefit from this trend.

Affordable Care Act: With Affordable Care Act, total coverage is expected to expand to 25 million in 2016 from 12 million in 2014. This will expand the top-line for the company.

Turnaround: Several initiatives taken by the company to reinvigorate top-line growth and reduce costs are delivering results.

The Bottom Line

With its strong national footprint and recent strategic initiatives like expanding the health care offering, growing Wellness+ and investing in its stores, the company should be able to expand its customer base and continue its strong performance in the coming quarters. Further ageing US population and Affordable Care Act will further support the stock.

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