Rite Aid back in the game
The big news in the space, according to investors, is the return to prominence of Rite Aid Corporation (NYSE:RAD), a competitor many had left for dead.
Since the start of the year Rite Aid Corporation (NYSE:RAD) shares have more than doubled in value, currently trading at $2.79, driven by the company’s finally righting of its financial ship. For the quarter ending in February Rite Aid Corporation (NYSE:RAD)actually had net income, $123 million, on revenues of $6.45 billion, its second straight profit after a long string of losses. The company recorded another profit for its latest quarter, $91 million, on $6.29 billion of revenue.
Credit goes to Ken Martindale, who was named president alongside the latest earnings. Martindale, who joined from Pathmark in 2008, basically went back to drug store blocking-and-tackling. The stores look similar to those of CVS Caremark Corporation (NYSE:CVS), many of them featuring nutrition products from GNC.
Martindale has made a real success here, but how far he can take the company is questionable. There is nothing in his background to suggest anything but an old-fashioned mainline retailer. At its present price the stock trades at a Price/Earnings (PE) multiple of 11.6, meaning it’s still relatively cheap.
A little more foot on the gas and you can still make money here on a trade, but that’s the best way to play it. Whether it’s a long-term holding or eventual take-out bait is unclear.
My Foolish take
Walgreen Company (NYSE:WAG) is not aiming at a short-term win here. If you buy the stock now and it’s still near $45 per share in December, it would not be a surprise.
But over the longer term – three-to-five years – Walgreen Company (NYSE:WAG) is the only drug store chain that is changing the industry’s game plan. There will be hiccups along the way, as I personally wonder whether wine bars will go with a drug store, but over the longer run it’s in a great position to take a much bigger share of the health care dollar than any drug store chain has, ever.
It’s an investment, not a trade. Let the traders wash it out and then pick it up, being prepared to hold it for some time before you think of taking profits. Your patience, I feel, will be rewarded.
The article Walgreen: Strategically Strong if Tactically Weak originally appeared on Fool.com and is written by Dana Blankenhorn.
Dana Blankenhorn has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Dana 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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