5 Reasons Rite Aid Corporation's Rebound Isn't Over Yet

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Smiley face.

That's what Rite Aid Corporation CFO Darren Karst called a graph showing the pharmacy retailer's earnings turnaround over the last few years. Actually, Karst told the audience at the JP Morgan Healthcare Conference on Wednesday the term originally came from CEO John Standley. If you look at the chart, Standley and Karst have a point.

Source: Rite Aid Corporation

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Their presentation at the conference didn't just talk about the past, though. Both Standley and Karst provided solid reasons to believe that Rite Aid's remarkable comeback will continue chugging along. Here are five factors that could prove them right (quotes courtesy of S&P Capital IQ).

1. Americans are getting older and older
The U.S. Census Bureau projects a 60% increase in the number of Americans age 65 and older between the years 2000 and 2020.

That's music to the ears of Rite Aid's management team. Why? Take a look at the comparison of how different age groups fill prescriptions.

Source: IMS Health 2014 via Rite Aid Corporation presentation

More older Americans. More prescriptions filled. As John Standley said this week, "Very solid tailwind there."

2. Generic boom ahead
The last two years saw a huge slump in terms of sales dollars of branded drugs newly exposed to generic competition. Rite Aid, however, is encouraged by IMS Health's outlook for the next few years.

Source: IMS Health, Dec. 2014 via Rite Aid Corporation presentation

2015 should be the best year for new generics since 2012. From 2015 through 2018, a total of $78 billion is expected to be exposed to generic competition. While Standley noted that there are "a few question marks in terms of how a couple of drugs may play out," this is definitely good news for Rite Aid, which makes higher profits off of generic drug sales.

3. Obamacare dividends
Health insurance exchanges established as part of the Affordable Care Act haven't resulted in a huge number of new customers for Rite Aid. Obamacare has helped in a different way, though.

Standley cited "a significant pickup" from Medicaid expansion in several states where the company operates. He also expects more growth from Medicaid in 2015, especially in a couple of states.

4. Changing dynamics
Healthcare in the U.S. continues to change -- and so will Rite Aid. John Standley spoke to attendees at the JP Morgan conference about several of those changes that position the company well for the future.

Probably the most important is Rite Aid's "Genuine Well-being" strategy. The idea is to enhance pharmacists' roles in helping healthcare providers improve patient care. Rite Aid plans to do this by deploying new technology that help pharmacists interact more with patients and better integrate with other healthcare providers. With reimbursement models shifting to more outcomes-based approaches, Rite Aid could win over the next few years if it executes this strategy well.

5. Management team mojo
Neither John Standley nor Darren Karst tooted their own horns much at the conference. But they didn't have to. Sales and prescription counts are up. Earnings are up. Innovative new programs are in place with more to come. Rite Aid's stock has soared 440% since the beginning of 2013.

None of those things happened by accident. The company's management team has done a great job in righting what looked to be a sinking ship just a few years ago. They appear to have the mojo to keep the tremendous turnaround continuing into the future.

More smiley faces?
Don't expect winning in 2015 and beyond to be easy, though. Rite Aid has strong competitors. Reimbursement rate pressures aren't going away. The economy could stumble. Wall Street isn't expecting Rite Aid shares to advance much in 2015.

My view is that the company can keep up its winning ways of late, though, and beat expectations. The five reasons given above highlight factors in Rite Aid's favor. If I'm right, Rite Aid's management and shareholders should still be talking about smiley faces a year from now. And they could be wearing them, too.

For more Foolish coverage of the JP Morgan Healthcare Conference,click here.

The article 5 Reasons Rite Aid Corporation's Rebound Isn't Over Yet originally appeared on Fool.com.

Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.