Walgreen Company (WAG) & Rite Aid Corporation (RAD): An Indication Of More Gains For One Of The Market’s Best Industries

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A Reason For Additional Optimism

Due to the generic transition, I have been highly optimistic and bullish on pharmacies. Since Rite Aid Corporation (NYSE:RAD)’s Q3 report, I’ve been the stock’s biggest cheerleader, buying at $1.23. However, as both Rite Aid and Walgreen Company (NYSE:WAG) announced monthly sales for May I became even more optimistic that we might get an even bigger quarterly surprise during earnings.

For the month, Rite Aid Corporation (NYSE:RAD)’s same-store sales fell 1.5% year-over-year, and the company specifically mentioned new generic introductions. Walgreen Company (NYSE:WAG)’s also mentioned new generic introductions, and saw its total sales grow 4.3% as comparable sales rose 2.8%. Granted, May was being compared to last year when the Express Script split had just occurred. However, this still paints a pretty picture when you consider the revenue and comparable sales losses seen by both companies during their last quarter.

Final Thoughts

The bottom line is that new generics are being introduced by the month, sales and volume is beginning to stabilize, and margins are rising sharply. Aside from the grocery industry, there isn’t another industry that trades at a deeper discount to sales compared to pharmacies. Walgreen Company (NYSE:WAG) and Rite Aid Corporation (NYSE:RAD) have price/sales ratios of 0.65 and 0.10, respectively, and with margins expanding Wall Street is rewarding both companies with large gains.

Now, with both seeing strong months in May, indicating strong trends in generics, and earnings season ahead, I’d watch both stocks closely, and would anticipate further gains in the months, and years, ahead.

Brian Nichols is long Rite Aid Corporation. The Motley Fool has no position in any of the stocks mentioned.

The article An Indication Of More Gains For One Of The Market’s Best Industries originally appeared on Fool.com.

Brian 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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