UBS Analyst: Q3 Looks Sound for Shoppers Drug Mart

Drugstore chain Shoppers Drug Mart Corp. (SHDMF.PK) will deliver sound results in the third quarter despite the poor economy, predicts analyst Vishal Shreedhar of UBS Investment Research.

“We believe prescription sales will continue to remain resilient throughout a consumer slowdown,” he wrote in a note to clients. Non-drug sales and margins are key at this time, he said.

The analyst added:

We continue to believe Shoppers has a  strong long-term outlook; however, given continued economic uncertainty, [shares] could continue to experience trading pressure.

We have adjusted our target multiple to 17.7 times estimated 2010 per share earnings, (down from a multiple of 18.7) to reflect increasing risk associated with escalating macro-economic pressure.

We continue to believe Shoppers has a large percentage of sales which are well insulated from a consumer slowdown; notwithstanding, given escalating economic pressure, we will revisit our projections following the quarter.

Shares are currently trading at 15 times forward per share earnings, versus an average of 10 times forward per share earnings for its North American peers.

He maintained a buy rating and adjusted his price target to C$59 from C$63.