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

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

Post by pitz »

Bought this one at the IPO, its done well over the past few years, but its sat at $40 for almost a year now, and has even softened recently into the $38-$39 range.

Time to buy more? Or should I direct my attention elsewhere? Debt levels are very low (19 times earning coverage on the long-term debt). And this issue should benefit nicely from favourable dividend tax changes with respect to the income trust tax disparity.
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Post by bill2009 »

fwiw my advisor proposed bailing now to protect our modest gains. he did think it was still a good long term holding. I'm travelling so I did not quiz him closely and haven't done my own research. Earnings are out in the next couple of days I think.
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Post by Shakespeare »

I don't follow it myself but here's a column by DeCloet.

Note that some people consider DeCloet to be a reliable contrary indicator. :wink:
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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Post by Bylo Selhi »

Shakespeare wrote:Note that some people consider DeCloet to be a reliable contrary indicator. :wink:
Most analysts can be relied on to be contrary indicators some -- but alas, not all -- of the time. What we need is a consistent indicator of reliability ;)
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Post by beaverlodge »

Shopper's should be, but will not be, embarassed by all the crap that they have in their stores.

Maybe this is an indicator!
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Post by dakota »

Shopper's should be, but will not be, embarassed by all the crap that they have in their stores.
I for one do not agree with that statement..but then it is only an opinion?
There is a lot more "crap" in other drug stores

Having said that, I sold my stock yesterday based on what I believe to be slow growth even when they do expand in Que. My son being a front store manager said that his store is still increasing sales.
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pitz
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Post by pitz »

Finally getting some movement. Broke $43 in the past few days.

And the dividend tax breaks did come through. ;) Better report me to the RCMP for inside information, lol, you heard it here first, a month in advance ;)
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Post by pitz »

Still nothing! The TSX is up a good 5-6% and this stock hasn't moved an inch! At $2/share EPS for 2006, this is priced at the market average, and has proven itself to be a good growth story as well.

Of course, the moment I sell or trim my position (to cut down on the margin interest I'm paying), it'll put on $10 in a month or two just like it did in 2004.
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Post by pitz »

Earnings up 18% year-over-year, dividend up 20%. Similar growth seen for next year, and minimal risk seen during the conference call.

"Irene Nattel, an analyst with RBC Capital Markets, said the operating performance at Shoppers was the strongest of any North American pharmacy chain during the quarter."

http://www.globeinvestor.com/servlet/st ... 8/GIStory/

Still not at its 52-week high, and $1.69/share gives it a trailing P/E of 26 which, coupled with a 18% growth rate, means this company is quite undervalued (TSX index has a trailing P/E of 20).
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Post by kjmcrae »

Shoppers is down ~ $1.20 today, but I have not seen any announcements to indicate why.

Is this just a "normal" correction? Has anyone heard anything?
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Post by investor99 »

Noticed this too, I didn't see any news.

It's starting to look reasonably attractive, however I would want more of a correction to get in.

I still think WAG in the U.S. is much cheaper. They just announced a 20% rise in earnings and the stock dropped to about a six month low.

Sometimes there is no explanation, just opportunity...
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Post by dakota »

kjmcrae wrote:Shoppers is down ~ $1.20 today, but I have not seen any announcements to indicate why.

Is this just a "normal" correction? Has anyone heard anything?
Anyone looking at what the rest of the market is doing? Is it going up by any chance while Shoppers is going down? :roll:
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Post by arthur »

My Dad has a ton of SDM, I am trying to get him to take some profits but his FA is cautioning him on Capital Gains Tax, at 88, who cares, his Estate will be paying a whole pile anyway.

I would be taking profits, wait until summer is over for a defined trend and interest rate announcements.
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Post by investor99 »

Well...

YTD returns:

CTC.A = +15.7%
SC = -4.0%
PJC.A = +12.0%
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Post by pitz »

Q2 earnings grew by 18.9%. Much faster than I expected.
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Post by brad911 »

The most significant part I saw when looking over the results was the higher than anticipated % of sales from prescriptions. I would have actually liked to have seen an small increase in sales from other products since that's where they've attempted to diversify their product line towards.
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Post by arnyk »

FCF growth lower than expected, mostly due to significantly increased CapEx. I'm never afraid of SC *not* generating FCF, but it's not generating enough to justify current valuations. You won't be disappointed if you hold, but I'm tight on cash so flipping this position was necessary.
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Post by investor99 »

I very much like the brand name cosmetics strategy.

This company is firing on all cylinders and should continued to do so for the foreseeable future IMO.
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Post by Arby »

A research report from CIBC gave a high rating for Shoppers, but also pointed out the following caveats:

- Shoppers is very expensive on a P/E basis, trading at 22.4 x 2007 earnings, which the highest multiple of any drugstore in North America. For comparison, Walgreen is trading at a much lower 20.6 x 2007 earnings.

- And then there is the Walmart threat. The CIBC report compared a basket of 16 common, high volume health and beauty items, and found that Shoppers prices were 25% above Walmart. As Walmart rolls out more Supercenters, and as Loblaw is forced to respond to Walmart, Shoppers will not be able to maintain that 25% price gap.
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Post by investor99 »

For comparison, Walgreen is trading at a much lower 20.6 x 2007 earnings.
Oh, don't even get me started on WAG.... :)

WAG's latest earnings report was up 20%, they have zero debt, and their ROE is over 18%; they've also raised their dividend for 32 consecutive years. Their earnings growth track record is nothing short of phenomenal.

If anything they should be trading at the higher P/E. I guess if the U.S. consumer is expected to cut back..... it's all about expectations.

I'd consider Shoppers, Walgreen-Lite :wink:



Disclosure - I hold WAG.
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Post by brad911 »

I don't see Walmart, Loblaws or any other "supercentre" type business as a direct competitor against Shoppers. Strictly from a demographic standpoint; their target markets are very different and aggressively pursued with different tactics.

For a senior who's time is precious because of the abundance of activities they currently participate in (and will continue to increase their activities in) Shoppers offers more locations with easier access, more familiar surroundings and efficient tracking of prescription lists.

It's only my opinion, but I feel the superstores offer little covenience because of their massive size & scale to the target market which holds the "Golden Script" as I call it. I've felt for a long time that convenience will hold a premium over price for this market as their lives become more and more demanding on their schedule. No senior will want to trek 1-200m to get into a superstore from the parking lot, plus another good jog to the prescription centre vs. smaller, more focused locations that SC has strategically targeted in key areas of communities.
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Post by AltaRed »

I agree. The shopping experience is considerably more pleasent in a convenient stand alone SDM than the 176 aisles of a supercentre. It takes effort to go to supercentres and stand in line behind 10 carts of 98 items each when all you want is a few health and beauty items.
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Post by sydney2 »

I find I am doing more shopping in our our local stand alone SDM than ever before. Milk/eggs etc are definitely cheaper than the grocery chains. The staff is well trained and the greetings as you come in the door is a plus and it is ongoing. I watch for this in every retail establishment because this is what I did in my former life, and it is not happening in other places, rarely can you find anyone to answer a question.

I have been buying all of our personal supplies from SDM, shampoo/haircolour/make-up/household cleaners/scripts and I don't hesitate to try some new products that are advertised because I know they will take them back without question, if I am not satisfied.

I love SDM, and should buy the stock. :lol:

[Some subsequent discussion split off to Catering to seniors ... - ModeratorA]
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Post by pitz »

Sold mine today, moved the money to XIC.

Can't see how a P/E in the mid 20s, and a dividend yield of barely over 1% represents good value compared to the 4.5% paid by the TSX Composite Index, and its P/E of 10 or less. And WAG is melting down in the US and I don't see how that won't be repeated here.

Was a good ride though, especially at basically triple the IPO price in 2001.

Nothing wrong with the company or its long-term growth prospects. Purely a trade on valuation and my overall portfolio.
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