Analysts Expect Earnings Miss from Shoppers Drug Mart

Shoppers Drug Mart Corp.'s (SHDMF.PK) fourth quarter results could leave investors grabbing for the Aspirin, according to BMO Capital analyst David Hartley.

He downgraded Shoppers shares from "market perform" to "underperform" and lowered his price target from C$57 to C$47.50, telling clients to expect the first earnings miss for Shoppers when results are reported today.

It's the second time in less than a month that Mr. Hartley has lowered his price target on the stock. Back on Jan. 11, 2008, his target dropped from C$59 to C$57.

The analyst wrote:

We believe the Shoppers stock price valuation will no longer 'walk on water' and will plunge to levels more in line with U.S. peers.

Since March, Shoppers' valuation has dropped only 15% compared with an average of 29% for North American drug store stocks, he added.

Mr. Hartley's fourth quarter earnings per share estimate was reduced from $C0.70 to C$0.67, because he expects weakness in the company's front store same store sales growth. He said U.S. peers and competitor Jean Coutu experienced same store weakness in October and November. According to Statistics Canada data, sales for prescriptions, over-the-counter drugs, vitamins and cosmetics are showing signs of slowing growth.

Long-term, Shoppers faces "a pipeline of less-than-rosy news," the analyst said. He lowered his 2008 EPS estimate from C$2.54 to C$2.44, and his 2009 EPS estimate from C$2.73 to C$2.56, citing a possible economic slowdown and increased competition in the pharma space from the likes of Wal-Mart (WMT), whose entrance into Ontario and Alberta (and other provinces in the near future), has put greater pressure on prices.