Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by Taggart »

Looking at quotes for SC this morning, and it seems so far the fish are biting....and here I thought yesterday's financial release was bad news for the stock. :shock:
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by Michael D »

I was in one of the busy downtown Ottawa stores. At lunch, lots of silly servants buying expensive boutique stuff (myself included). Saw a fellow taking Armani ($90 a pop) cologne out of the box(security tag is on box), pocketing the bottle, and walking out of the store. Took him 1 minute to stash and return to the store. I reported him.

Expecting a margin increase next quarter ;)
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by adrian2 »

From TD Waterhouse:
The Government of Ontario (Ministry of Health and Long-Term Care) announced long awaited drug reform details. Unfortunately the worst case scenario materialized.

Suffice it to say, it just became a lot less profitable to run a pharmacy in Ontario and, eventually, probably Quebec as well. Given the lack of direct benefit to the government, we had assigned a relatively low probability to the worst case scenario (i.e., that government significantly reduces generic pricing and eliminates generic rebates on the private side) panning out but the government’s proposal did just that and then some. At first glance, it looks like pharmacies will take much, if not all, of the blow themselves, leaving the generic drug companies to emerge relatively unscathed. Moreover, there was very little offered in return for pharmacies to fill the funding gap on dispensing fees. The only saving grace is that the much larger private plan changes will be phased in over 4 years, but this will also depress earnings growth over an extended period of time.

[...]

Our 12-month target falls to $40.00 (from $52.00) but because we believe that the stock will drop materially on the open, it seems pointless to recommend selling at this point...so we are downgrading the stock to HOLD (from Buy).
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by Michael D »

adrian2 wrote:From TD Waterhouse:
Our 12-month target falls to $40.00 (from $52.00) but because we believe that the stock will drop materially on the open, it seems pointless to recommend selling at this point...so we are downgrading the stock to HOLD (from Buy).
There is a big stink bid for $38.00 after close yesterday (close was $43.xx). Don't get caught putting in a 'market sell' before open.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by kcowan »

Michael D wrote: There is a big stink bid for $38.00 after close yesterday (close was $43.xx). Don't get caught putting in a 'market sell' before open.
The open was $36! Although it looks like it will close somewhat higher.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by Peculiar_Investor »

TD Waterhouse, with adrian2's underlining, wrote:Our 12-month target falls to $40.00 (from $52.00) but because we believe that the stock will drop materially on the open, it seems pointless to recommend selling at this point...so we are downgrading the stock to HOLD (from Buy).
At least there is some honesty in that recommendation.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by Michael D »

Peculiar_Investor wrote:
TD Waterhouse, with adrian2's underlining, wrote:Our 12-month target falls to $40.00 (from $52.00) but because we believe that the stock will drop materially on the open, it seems pointless to recommend selling at this point...so we are downgrading the stock to HOLD (from Buy).
At least there is some honesty in that recommendation.
TD's brokerage probabably had the low buys (a few million shares)...playing both sides of the game.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by Shakespeare »

ISTM that most of the time, a stock is priced on open after a negative announcement such that the market maker will make money on the open - that is, the stock will often go up from the open during the day.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by brad911 »

Bought a truck load this morning right off the bat :)

I wrote about all of this a few months ago with regards to why there would only be a moderate/no dividend increase; so nothing announced today was new news. I even calculated approximately how much I thought this might cost the company.

Odd how the market over-reacts to news already available to people if they did their own independent thinking.

I'll likely sell a portion in the next while as the price adjusts; long this stock.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by ThinkDividends »

brad911 wrote:Bought a truck load this morning right off the bat :)
Odd how the market over-reacts to news already available to people if they did their own independent thinking.
I sold my SC position last September for $43. Now that the news is "out", I am looking to get back in around $36.

I am expecting SC to have EPS of $3.00 in 2011, so 12x forward P/E is a good deal for Canada's best retailer.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by brad911 »

I dunno about the best retailer (I think Costco does a really good job); but certainly one I would put into the top 10. There are some private businesses that I think do far better, but those aren't something you can invest in of course.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by Taggart »

After yesterday's drop, I thought SC would be dirt cheap. I'm in no rush to buy.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by Pickles »

The truculent comments by Shoppers' CEO do not inspire confidence. He talks about slashing hours and jobs and stores after two years of steady expansion. Diversification of product was a good move but the success of this strategy is contingent on convenient hours and access. Does he really think those cosmetics and over-priced groceries are going to sell between 9 - 5?

Sure, a lot of it is posturing, but Schreiber's response lacked class and is getting a lot of negative press and alienating its customers. Not a prudent move, IMHO. I bought SC at $49.60 in 2006 and sold at a loss last December ($44.10). SC is now selling at $38.50. So much for growth and Schreiber's leadership. I agree with Brad that the stock is more reasonable priced this week but is it a bargain? I'm not so sure, with its CEO apparently prepared to reverse company strategy for growth as a cut-off-its-nose knee jerk response to long-anticipated government regulation.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by Hammerer »

Keep in mind, pharmacies are allowed to have what are called "Lock and Leave" dispensaries, where the dispensary itself can close, while the rest of the store may remain open. Some products in the "front shop" have to be locked up as well, but this isn't the case for _most_ products. SC may start using this approach, especially in their more "convenience" locations.

Whenever I've walked into one near midnight, or overnight, I couldn't figure out how they made the business case for operating at these times, so that will probably be the first to go, unless they're across from an ER or the one 24-hour location in a large city.

I'm actually surprised SC shares didn't drop a few days before they did.

I wouldn't buy SC stock, other provinces are likely to follow these kinds of pricing changes, either automatically, or legislatively. [LATE EDIT: Unless you think there will be significant enough consolidation that will make up for any losses and be positive for SC in the end]. Pharmacies are likely going to raise dispensing fees to maintain margins to some degree, and SC's are already the highest around, giving them less room to work with, especially with drug plans that have paid the whole thing, or the first $12 of the $13ish dispensing fees.
Last edited by Hammerer on 09 Apr 2010 15:10, edited 2 times in total.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by pitz »

Hammerer wrote:Keep in mind, pharmacies are allowed to have what are called "Lock and Leave" dispensaries, where the dispensary itself can close, while the rest of the store may remain open. Some products in the "front shop" have to be locked up as well, but this isn't the case for _most_ products. SC may start using this approach, especially in their more "convenience" locations.
IMHO, it will be a cold day in hell before any SC goes to 'lock and leave'.
Whenever I've walked into one near midnight, or overnight, I couldn't figure out how they made the business case for operating at these times, so that will probably be the first to go, unless they're across from an ER or the one 24-hour location in a large city.
Many pharmacies have significant nursing home and long-term care home contracts, and these get fulfilled on the overnight shift, so its not like the pharmacist is sitting there, with a tech, doing nothing, or twiddling their thumbs. Also, prescription orders received the previous day through the phone or the Internet are filled. All they need is 2 or 3 people in the front store, a pharmacist, and a tech, and that's it. Can a Shoppers make $50-$70/hour in the front store to cover staffing, at 40% margins, overnight? I have absolutely no doubt that they can.

In a rational world, drugstores such as Shoppers Drug Mart would be exclusive outlets for tobacco and alcohol products as well... But seems that such is, unfortunately, not the direction of the government in Ontario, although I would suggest that it should be.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by Hammerer »

Jurgen's hard-talk was suggesting that they might be going lock-and-leave in some locations. But certainly, who knows just to what degree what he says will be implemented. I don't see him as a non-credible individual, I just haven't heard much from him ever before.

Interesting point-of-view regarding alcohol and tobacco. I always cringe a touch when the local government liquor outlet refuses a sale to someone, thinking to myself: "I wonder if they realize that their decision may kill him/her".

Just a little about pharmacy economics, from what I understand it to be:
Margins on generics are (were?) good, but margins on brand name drugs (read: expensive) are razor thin, if not negative after costs are considered.
On the government book of business, most of the time the whole 8% markup isn't received for brand name drugs, because of wholesaler markups. The government reimburses for what it costs from the manufacturer, not the wholesaler. You either can't, or it's impractical to buy directly from the brand name manufacturer most of the time.

In the USA (and elsewhere?), pharmacy is more markup based, so even though generics are cheap, the Lipitor/Plavix/Micardis/etc base cost is higher in the first place, and the pharmacy gets a reasonable markup on it. Thus, the emphasis is for the pharmacy to sell more expensive drugs. Interests are completely disaligned with the payor.

The main point I'm trying to get across is that it appears that specific drug costs are being looked at in isolation, rather than the overall picture. All parties seem to be picking and choosing which expenditures are too high/too low, which is ridiculous.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by FinEcon »

pitz wrote: IMHO, it will be a cold day in hell before any SC goes to 'lock and leave'.
Globe and Mail wrote: Two of the London stores will also implement what is known as “lock-and-leave,” which will see the pharmacy closed while the rest of the store remains open.
I agree with the general sentiment on this forum that SC is a good business and an even better long term investment but I think one must be careful in underestimating what can happen when regulated industry meets retarded/scorned/vote seeking bureaucrat(s).

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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by pitz »

FinEcon wrote: I agree with the general sentiment on this forum that SC is a good business and an even better long term investment but I think one must be careful in underestimating what can happen when regulated industry meets retarded/scorned/vote seeking bureaucrat(s).
Wow, I'm shocked....

Could civil servants dispense drugs less expensively than a Shoppers Drug Mart Associate and his/her Pharmacist team? I doubt it. The government needs to butt out on this, or, at the very least, raise the professional fee reimbursements to account for the dramatic cost inflation on the labour side of the retail pharmacy business.

Every Shoppers Associate I know is now working 30+ hour work weeks in the dispensary, and, on a yearly basis, earns roughly what a pharmacist working 50 hour work weeks in the dispensary earns. In other words, not a dramatic windfall. Government should look at some of its own internal expenditures and rampant waste, ie: eHealth, OPG, Hydro 1, hospitals, etc., before going after private businesspeople trying to make a buck and practice their profession.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by JaydoubleU »

I'm not quite sure why people think SC is such a great stock. I haven't followed the company much over the past year (I got in in 2007 and out in 2008), but from what I can see at this point, SC has been nothing but a disappointment over the last 2 years. It's one of those stocks that is always offering hope. A bit like RCI.B or TRI. One keeps wondering WHEN and then eventually tires of it.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by pitz »

JaydoubleU wrote:I'm not quite sure why people think SC is such a great stock. I haven't followed the company much over the past year (I got in in 2007 and out in 2008), but from what I can see at this point, SC has been nothing but a disappointment over the last 2 years. It's one of those stocks that is always offering hope. A bit like RCI.B or TRI. One keeps wondering WHEN and then eventually tires of it.
I sold mine during the crash of 2008 because, of all the stocks in my portfolio, it retained its value the best, a purely technical decision not based on the fundamentals (or lack thereof) of the business. The proceeds were cycled into securities that were hit far harder (ie: TCK) that have since recovered value.

SC peaked out at what, around $55. A price of ~$44 today would imply a perfect correlation with the broader TSX market. A few dollars off that for this recent issue, and I don't see why you should be dissappointed with SC versus the TSX.

My shares came at the IPO for $18 in 2001, so even at the price I exited ($47 I believe), it still was an excellent investment versus being invested in the broader TSX index and Canadian stock market.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by Locke »

JaydoubleU wrote:I'm not quite sure why people think SC is such a great stock. I haven't followed the company much over the past year (I got in in 2007 and out in 2008), but from what I can see at this point, SC has been nothing but a disappointment over the last 2 years. It's one of those stocks that is always offering hope. A bit like RCI.B or TRI. One keeps wondering WHEN and then eventually tires of it.
TRI and PetroCan (back in the day) comes to mind when I think of perennial disappointments.

Dividend growth despite being a short record is fairly substantial. I'd look @ Walgreens if it were cheaper, if I wanted a drug store stock.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by JaydoubleU »

I sold mine during the crash of 2008 because, of all the stocks in my portfolio, it retained its value the best, a purely technical decision not based on the fundamentals (or lack thereof) of the business. The proceeds were cycled into securities that were hit far harder (ie: TCK) that have since recovered value.

SC peaked out at what, around $55. A price of ~$44 today would imply a perfect correlation with the broader TSX market. A few dollars off that for this recent issue, and I don't see why you should be dissappointed with SC versus the TSX.

My shares came at the IPO for $18 in 2001, so even at the price I exited ($47 I believe), it still was an excellent investment versus being invested in the broader TSX index and Canadian stock market.
I think I recall some of this discussion from the other forum, pitz. (over there I was jonnyrotten 8) ) I didn't get in nearly as low as $18, but I managed to make a good profit selling at $55. Dividend growth WAS strong, but then it came to a halt. Did they raise this year? As mentioned, I haven't been following lately. I seem to recall many investors believing SC was a good buy under $50 because of terrific growth.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by augustabound »

Not sure about anywhere else, but in Southern Ontario there are Rexal stores popping up everywhere.
I've seen one in Newmarket, Bradford, St.Catharines and the last time i was in London (about a month ago) there was a new one there too.
I wonder how the Rexal expansion into Ontario will impact SC.
I know for DW and I, after we move next year into the new house, we'll be 2 minutes to the new Rexal.
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by AltaRed »

Two brand new Shoppers within 3 km of each other opened in the last 3 years, in my area of town. And both located next to supermarkets which can (and do) sell al lot of the same stuff for less. WTF is that all about?
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Re: Shoppers Drug Mart (Symbol-SC) -- why so beaten down lately?

Post by pitz »

AltaRed wrote:Two brand new Shoppers within 3 km of each other opened in the last 3 years, in my area of town. And both located next to supermarkets which can (and do) sell al lot of the same stuff for less. WTF is that all about?
Its never been the business model of Shoppers to even attempt to compete on price. Sending out the weekly flyers is very likely a complete waste of money, as the coupon clippers, as you suggest, don't find much value there either.

Think of Shoppers as being a glorified convenience store without the long lineups of the grocery store. If you just want to get your pills and a box of tampons -- chances are, you'll just pop into Shoppers, instead of going to the supermarket, and rummaging around.

There are plenty of business which, if consumers strictly picked them based on price, would have gone out of business a long time ago. That doesn't mean that they don't serve a useful purpose, but undeniably, they are more highly susceptible to a consumer spending (and/or a government spending) pullback. Just ask Air Canada how many Executive Class (J) seats they sell these days, versus in 1999 when the Canadian economy was most recently in good shape.
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