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Shoppers Drug Mart


Viking
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Anyone buying Shoppers (SC-TSE) given the recent sell off? For those not aware, Ontario (largest province in Canada slashed prices pharmacies can earn on generic drugs). About 1/2 of Shoppers profits are driven by its pharmacies (the other 1/2 by retail operations).

 

It is trading at $38.25 (down from $43).

RBC is estimating it will earn $2.94 this year and $2.95 next year = PE = 13 (after taking account of drop)

 

Going into 2012 it should then resume its growth. It certainly is in the right space. This environment may also allow them to pick up other pharmacies in Ontario at very attractive prices. The key risk is if other provinces follow Ontario's lead and slash prices paid for generic drugs (further hurting earnings).

 

Looks to me that Mr. Market is expecting the worst already. And you get a decent dividend while you wait for profitability to reset. Others thoughts?

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I am waiting for more visibility on the business impact.  Compare to Loblaw (L-TSE) as it was falling a few years ago.  It fell a long way, only now climbing back, and it's not clear it will reach old valuations soon.  SC-TSE may be in a similar situation.  It doesn't seem expensive, but margin of safety is not clear. 

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  • 3 years later...

 

They are paying up, but they are getting a great brand and chain, which will make them the largest pharmacy across Canada.  Loblaws needs to continue to get bigger to maintain their market share.  Now let's see who throws an offer out to Jimmy Pattison for Save-on-Foods!  Cheers!

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