Rite Aid is back in the black, and analysts are taking notice

Rite Aid last week posted a third quarter profit of $61.9 million, marking the first time Rite Aid has been back in the quarterly black since June 2007. The quarterly report beat analyst expectations as the generic wave and retention of Express Scripts customers helped drive better-than-expected adjusted EBIDTA.

It's certainly a timely Christmas gift that Rite Aid delivered to those shareholders who believed in the Pennsylvania pharmacy operation when it's stock hovered around $1 per share; in the week following the third quarter conference call Rite Aid's stock price was up some 40%.

And while that's a pretty healthy return for those investors, the time to capitalize on their optimism may not be any time in the near future. Now trading around $1.40, that share price may still go up with more Rite Aid good news. And if you're an avid reader of DSN (and you should be), then you know why — Rite Aid gets well, and it's that in-depth understanding that will continue to make Rite Aid's fundamentals even better. 

A big driver behind Rite Aid's improvement can be linked to the chain's Wellness+ loyalty card program, which had approximately 25 million active members in the quarter, a 5% increase over the same period a year ago. It was the Wellness+ loyalty program that Rite Aid executives credited for being able to retain the "vast majority" of patients gained through the Walgreens-ESI dispute. According to the company, prescriptions filled at stores open at least a year had gained by 3.6%.

As mentioned in DSN's recent coverage of Rite Aid's third-quarter conference call, Wellness+ members accounted for 76% of front-end sales in the quarter, compared with 72% in third quarter 2012, as well as 67% of prescriptions filled, compared with 66% during the same period last year. So it's not too hard to piece it all together — that 5% increase in Wellness+ members, who incidentally are accounting for roughly the same portion of Rite Aid's overall sales pie (with a slight improvement across the margin-friendlier front-end), has coincided with Rite Aid moving the sales ledger from red to black.  

And Rite Aid is projecting there is still room for those numbers — the actual number of active card holders as well as their collective contribution to the top line — to grow. 

Even as Rite Aid realizes better returns from its Wellness+ investment, that's not the only factor that's getting analysts to take notice of Rite Aid for calendar year 2013. As BTIG analyst Will Frohnhoefer told the AP: "I think it's all dovetailing together in a fairly attractive way for [Rite Aid]."  

"The company, which has a lot of debt, has improved its balance sheet by refinancing and helped its stores with remodeling," he said. And Rite Aid is well positioned to capture a significant amount of the additional growth in Medicare rolls, Frohnhefer added. 

"Well, I'll be darned. This past Thursday, Rite Aid reported its first profit in five years, breaking a 21-quarter streak," wrote Motely Fool blogger Jacob Roche. "Is the tide truly turning for Rite Aid?" Roche suggests maybe so, especially as Rite Aid management raised full-year earnings guidance from a sure loss to a modest loss and possible profit. "Even at the low end [of Rite Aid's projections], that implies a strong improvement in the fourth quarter, historically one of the weakest," Roche noted. 

If you read on in Roche's blog, you'll see that Rite Aid needs to continue building its sales momentum before they maker a believer out of every analyst. But a corner has been turned. And analysts are taking notice. Because Rite Aid is back in the black, and they're liable to stay there.