Tomahawk, WI 09/19/2014 (Basicsmedia) – Rite Aid Corporation (NYSE:RAD) pounding in the market in the recent past can be attributed to the company doing everything wrong, on the pharmaceutical side of the business. Despite sinking in the market by huge volumes, CNBC’s Jim Cramer believes the stock is still a strong buy with a huge upside potential going forward.
Rite Aid Corporation (NYSE:RAD) management is citing higher costs incurred for the introduction of new generics as the main reason behind its unprecedented revision of 2015 guidance. It’s margins have consequently been suppressed by 2%.
“They just totally got their pharmacy business wrong, totally. They now estimated incorrectly several times how much reimbursement they would get from pharmacy benefit-managers who they work with. They completely botched the schedule of drugs going generic to the point where they had to guide down immensely 10% from the previous guidance,” said Mr. Cramer.
Cramer argues that Rite Aid Corporation (NYSE:RAD) is not doing enough in the running of it’s pharmaceutical business something that is of a concern and should suppress margins going forward should the trend continue. On the brighter side, Rite Aid’s remodeled stores continue to perform well, compared to the old stores at the back of the appointment of a new CFO, Darren Karst, who Cramer believes can turn things around in the company.
“[…] the company has to get its pharmaceutical act together right, now. Let’s hope this is a wake-up call that so badly needed or else maybe they just turned into zombies. I don’t believe it, I think the turn is on, but not in the pharmacy side, “said Mr. Cramer
On a call to investors CEO, John standley, is quoted as saying that the company’s margins were greatly affected by the company’s new generics drug losing exclusivity. Obamacare medical regulations have, on the other hand, benefited most of the drug store chains as more people continue to register for insurance. Meaning that companies like Rite Aid Corporation (NYSE:RAD) will continue to enjoy consistent streams of revenue from the sale of products.