Estimates have risen sharply for Rite Aid Corporation (NYSE:RAD) following the company’s better-than-expected fiscal 2015 third quarter results. Not only did Rite Aid crush earnings expectations, it beat revenue expectations thanks to a solid 5.4% jump in same-store sales. And management increased its full year sales and EPS guidance too.

Rite Aid is a Zacks Rank #1 (Strong Buy) stock.

Rite Aid Corporation is a drugstore chain with 4,570 stores. Approximately 70% of its total revenues comes from pharmacy sales. It is headquartered in Camp Hill, Pennsylvania and has a market cap of $7.2 billion.

Third Quarter Results

Rite Aid reported its fiscal 2015 third quarter results on December 18. Results came in well above expectations.

Earnings per share for Q3 was $0.10, doubling the Zacks Consensus Estimate of $0.05. It was also 150% increase from the same quarter last year. Revenues rose 5% to $6.692 billion, ahead of the consensus of $6.643 billion. Same-store sales increased a solid 5.4% year-over-year, driven by a 7.2% increase in pharmacy sales.

The gross profit margin expanded 42 basis points to 28.74% of revenues. Meanwhile, selling, general and administrative expenses declined 38 basis points to 25.29% of revenues. And total interest expense decreased more than 5% year-over-year. These factors helped drive a 44 basis point improvement in the net profit margin to 1.57% of revenues.

Estimates Rising

Following strong Q3 results, management raised its full year guidance for both same-store sales and EPS. The company now expects fiscal 2015 same-store sales within a range of 3.75-4.25%, up from prior guidance of 3.00-4.00%, and EPS of $0.31-$0.37, up from $0.22-$0.33.

This was also well above consensus at the time and prompted analysts to unanimously revise their estimates higher too, sending the stock to a Zacks Rank of 1 (Strong Buy).

The 2015 Zacks Consensus Estimate is now $0.34, within guidance, and up from $0.28 before the report. The 2016 consensus increased from $0.37 to $0.43 over the same period.

Rite Aid also reported solid top-line results for December on January 2. Same-store sales increased 5.3% year-over-year, driven once again by strong growth in pharmacy sales, which rose 7.3%.

Valuation

Shares of Rite Aid have soared since the better-than-expected Q3 report. But valuation still looks reasonable with shares trading at 18x forward 12-month EPS, which is a slight discount to the industry median. Its enterprise value to cash flow ratio of 17x is also a slight discount to its peers.

The Bottom Line

With strong earnings momentum driven by solid top-line growth and expanding profit margins, along with reasonable valuation, shares of Rite Aid could very well continue to climb over the next several weeks.

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