Shares of Rite Aid are back from zombie-land, flirting with $5 a share for the first time since 2007. Shoppers, and profits, are returning to newly-refurbished Rite Aid stores after years of "sub-optimal" renovations. And five years of losses have a bright side: Rite Aid burned up so much money in the recession -- more than $2 billion -- that it will be able to claim net-operating-loss credits to write down its federal income tax bills until 2022, and trim its state income tax bills, writes analyst John W. Ransom in a report to clients of Raymond James & Associates.
With the Camp Hill, Pa.-based drug and variety store chain posting profits this year for the first time since 2007, Rite Aid ran a store-remodeling campaign that has brought in more customers; Obamacare promises to bring in more insured prescriptions; and expiring patents will bring in more profitable generic drugs, further boosting sales and profits, Ransom notes.
Result, writes Ransom: "Rite Aid's free cash flow should grow at above average levels" for the next 10 years, enabling the company to fix up more stores after five years of "sub-optimal" renovations, pay down the chain's hulking debt, and "perhaps selectively pursue acquisitions," in places that "make strategic sense."