1 Drug Store And 1 Health Store With Recent Intensive Insider Selling

|
 |  Includes: GNC, RAD, XLP
by: Markus Aarnio

The Consumer Staples Select Sector SPDR ETF (NYSEARCA:XLP) was trading as low as $19.28 in March 2009. The index is currently trading at $41.75 or 116.5% above the low made in March 2009.

Click to enlarge

In this article, I will feature two consumer stocks that have seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

1. Rite Aid Corporation (NYSE:RAD) operates retail drugstores in the United States.

Click to enlarge

Insider selling by insiders (last 30 days)

  • Robert I. Thompson sold 375,000 shares on July 11, and currently holds 749,882 shares or less than 0.1% of the company. Robert I. Thompson is Executive Vice President, Pharmacy.
  • Robert K. Thompson sold 401,655 shares on July 17-18, and currently holds 157,911 shares or less than 0.1% of the company. Robert K. Thompson is Executive Vice President, Store Operations.
  • David Jessick sold 100,000 shares on July 16 and currently holds 269,208 shares or less than 0.1% of the company. David Jessick serves as a director of the company.
  • Marc Strassler sold 375,000 shares on July 16, and currently holds 699,369 shares and 375,000 options or 0.1% of the company. Marc Strassler is Executive Vice President, Secretary and General Counsel.
  • Douglas Donley sold 82,277 shares on July 9-12, and currently holds 81,628 shares or less than 0.1% of the company. Douglas Donley is Senior Vice President and Chief Accounting Officer.

Insider selling by calendar month

Here is a table of Rite Aid's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
July 2013 1,333,932 0
June 2013 40,500,000 0
May 2013 0 0
April 2013 73,885,260 0
March 2013 0 0
February 2013 0 0
January 2013 0 0
Click to enlarge

There have been 115,719,192 shares sold and there have been zero shares purchased by the insiders this year.

Financials

The company reported the fiscal 2014 first-quarter, which ended June 1, financial results on June 20, with the following highlights:

Revenue $6.3 billion
Net income $89.7 million
Cash $108.9 million
Debt $5.9 billion
Click to enlarge

Outlook

The company's full fiscal year 2014 guidance is as follows:

  • Sales are expected to be between $24.9 billion and $25.3 billion in fiscal 2014, with same-store sales expected to range from a decrease of 0.75 percent to an increase of 0.75 percent over fiscal 2013.
  • Adjusted EBITDA is expected to be between $1.090 billion and $1.175 billion.
  • Net income is expected to be between $22.0 million and $162.0 million or income per diluted share of $0.01 to $0.16.
  • Capital expenditures are expected to be approximately $400 million.

Competition

Rite Aid's competitors include CVS Caremark Corporation (NYSE:CVS), Walgreen (WAG) and GNC Holdings (NYSE:GNC). Here is a table comparing these companies.

Top Drug Stores Companies by Market Cap
Click to enlarge
Company Symbol Price Market Cap P/E
CVS Caremark Corporation CVS 61.84 75.72B 19.26
Walgreen Co. WAG 50.98 48.18B 22.30
GNC Holdings Inc. GNC 54.50 5.31B 21.53
Rite Aid Corporation RAD 3.27 2.97B 13.46
Click to enlarge
Click to enlarge

Rite Aid has the lowest P/E ratio among these four companies.

My analysis

There have been five different insiders selling the shares and there have not been any insiders buying the shares during the past 30 days. All five of these insiders decreased their holdings by more than 10%. The company has an insider ownership of 12.80%. There are four analyst buy ratings, four neutral ratings and zero sell ratings with an average target price of $2.88. The stock is trading at a P/E ratio of 13.46 and a forward P/E ratio of 12.92. The company has a book value of -$2.84 per share. Before entering short this stock, I would like to get a bearish confirmation from the Point and Figure chart. The three main reasons for the proposed short entry are the negative book value, bearish analyst target prices and the intensive insider selling activity.

2. GNC Holdings operates as a specialty retailer of health and wellness products.

Click to enlarge

Insider selling by insider (last 30 days)

  • Amy Lane sold 1,000 shares on July 30, and currently holds 4,517 shares and 30,500 options or less than 0.1% of the company. Amy Lane serves as a director of the company.
  • Gerald Stubenhofer sold 15,000 shares on July 30, and currently holds 16,346 shares and 45,000 options or less than 0.1% of the company. Gerald Stubenhofer is Senior Vice President of the company.
  • Joe Fortunato sold 111,885 shares on July 31, pursuant to a Rule 10b5-1 sales plan. Joe Fortunato currently holds 79,284 shares or less than 0.1% of the company. Joe Fortunato is President and CEO of the company.
  • Thomas Dowd sold 49,200 shares on July 11-25, pursuant to a Rule 10b5-1 sales plan. Thomas Dowd currently holds 40,719 shares and 60,044 options or 0.1% of the company. Thomas Dowd is Executive Vice President of the company.
  • Andrew Drexler sold 2,500 shares on July 25, and currently holds 7,934 shares and 18,000 options or less than 0.1% of the company. Andrew Drexler is Senior Vice President & Corporate Controller.

Insider selling by calendar month

Here is a table of GNC Holdings' insider trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
July 2013 179,585 0
June 2013 25,756 0
May 2013 7,250 0
April 2013 0 0
March 2013 0 0
February 2013 287,306 0
January 2013 0 0
Click to enlarge

There have been 499,897 shares sold and there have been zero shares purchased by the insiders this year.

Financials

The company reported the second-quarter financial results on July 25, with the following highlights:

Revenue $676.3 million
Net income $71.7 million
Cash $64.0 million
Debt $1.1 billion
Click to enlarge

Outlook

The company's guidance for 2013 is as follows:

  • Consolidated earnings per diluted share of approximately $2.83 - $2.88 for the full year 2013, a 21% - 24% increase over 2012 adjusted EPS of $2.33. This is an increase of $0.08 from the company's previous outlook for 2013, and includes approximately $0.06 from a reduction in the diluted share count from approximately 100 million to approximately 98 million for the full year 2013, based on share repurchase activity through the second quarter of 2013.
  • The EPS outlook is based on achieving a high-single digit increase in domestic company-owned same store sales for Q3 and Q4 2013.

Competition

GNC Holdings' competitors include Amazon.com (NASDAQ:AMZN), CVS Caremark Corporation and Walgreen.

Company GNC AMZN CVS WAG
Market Cap: 5.31B 139.02B 75.72B 48.18B
Employees: 6,000 88,400 203,000 171,000
Qtrly Rev Growth (yoy): 0.09 0.22 -0.00 0.03
Revenue: 2.53B 66.85B 123.10B 71.35B
Gross Margin: 0.38 0.26 0.19 0.29
EBITDA: 498.07M 2.98B 9.36B 4.62B
Operating Margin: 0.18 0.01 0.06 0.05
Net Income: 254.00M -101.00M 4.06B 2.15B
EPS: 2.53 -0.23 3.21 2.29
P/E: 21.53 N/A 19.26 22.30
PEG (5 yr expected): 1.01 9.57 1.13 1.26
P/S: 2.06 2.09 0.62 0.68
Click to enlarge
Click to enlarge

GNC Holdings has the second highest P/S ratio among these four companies.

My analysis

There have been five different insiders selling the shares and there have not been any insiders buying the shares during the past 30 days. Three out of these five insiders decreased their holdings by more than 10%. The company has an insider ownership of 0.30%. The stock is trading at a P/E ratio of 21.53 and a forward P/E ratio of 16.03. The company has a book value of $8.53 per share and the stock has a dividend yield of 1.10%. Before entering short this stock, I would like to get a bearish confirmation from the Point and Figure chart. The main reason for the proposed short entry is the intensive insider selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.