Going forward, Rite Aid Corporation (NYSE:RAD) will continue to be squeezed by its two larger competitors, Walgreen and CVS. Now that Express Scripts customers are starting to return to Walgreen’s stores, Rite Aid is experiencing anemic sales growth. Furthermore, Walgreen Company (NYSE:WAG) and CVS are both expanding, while Rite Aid is gradually shrinking its store base. This trend will give Rite Aid’s competitors even more economies of scale, while new CVS and Walgreen’s stores will likely target current Rite Aid customers.
Rite Aid stock is too speculative to recommend for most investors at this point in time. While Rite Aid’s enterprise value of $8 billion is significantly below that of Walgreen Company (NYSE:WAG) ($49 billion) the lower valuation is fully justified by the company’s weak profitability. Rite Aid continues to face significant long-term challenges, and I am skeptical that last year’s upturn was anything more than a one-time bounce attributable to the Walgreen-Express Scripts dispute. With Express Scripts customers now returning to Walgreen’s stores, Rite Aid Corporation (NYSE:RAD) will probably resume its slow decline.
The article Rite Aid Keeps Falling Behind originally appeared on Fool.com.
Fool contributor Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends Express Scripts. The Motley Fool owns shares of Express Scripts.
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