Rite Aid Corporation (RAD): Does This Drugstore Have More Upside?

CVS Caremark Corporation (NYSE:CVS), the largest integrated-pharmacy company in the United States, is a provider of prescriptions and related healthcare services. CVS Caremark’s pharmacy services are provided through its pharmacy benefit management (PBM), mail-order and specialty pharmacy divisions.

With a solid first-quarter report, management continues to expect strong free cash flow for the remainder of 2013. The company reconfirmed its free cash flow guidance of between $4.8 billion and $5.1 billion for 2013. CVS Caremark continues to benefit from the influx of new generic drugs, which drove the company’s year-over-year profit growth.

CVS Caremark also helps clients to effectively manage the fast-growing costs in specialty pharmacy, and management projects that spending on specialty drugs will grow 20% annually to $120 billion in 2016. With the solid operation and steady growth, management continues to focus on returning value to shareholders through dividends and share repurchases.

While CVS Caremark has the strongest cash flow among three companies with the highest revenue growth (three-year average) and margins, Walgreen and Rite Aid continue to improve their bottom lines with solid progress. At current valuations, including a forward P/E of 6.7, Rite Aid still has a lot of upside potential if it can continue to increase its earnings and expand its margins.

Bottom line

By improving its balance sheet and focusing on operation enhancement, Rite Aid Corporation (NYSE:RAD) continues to move in the right direction. As Rite Aid keeps generating positive earnings and expanding margins, more upside is expected for this mid-cap pharmaceutical retailer.

The article Does This Drugstore Have More Upside? originally appeared on Fool.com and is written by Nick Chiu.

Nick Chiu has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Nick is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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