Analysts Applaud Shoppers' Move into Specialty Pharmacy Market

Shoppers Drug Mart Corp.'s (SHDMF.PK) decision to move into the specialty pharmacy market this week was well received by analysts.

In a note to clients, Scotia Capital analyst Ryan Balgopal said:

The acquisition of Calea HealthAccess, which distributes and administers drugs to patients with complex medical conditions such as cancer and HIV, provides Shoppers with better knowledge of a fast-growing specialty pharmacy segment. With growth rates in the mid-teens, entering the sector "is complementary to [Shoppers'] existing businesses and allows it to leverage its scale.

Mr. Balgopal reiterated his rating of sector outperform on the shares and his one year price target of C$67.50.

While the acquisition is not material from a financial reporting perspective, Shoppers' entry into the C$3-billion a year specialty pharmacy business in Canada seems to follow a trend occurring among U.S. counterparts such as CVS (CVS) and Walgreens (WAG), said Desjardins Securities analyst Keith Howlett.

In a note to clients, he wrote:

Both drug retailers and wholesalers in the U.S. appear to want to move to a new business paradigm with higher margins, based upon services which make more healthcare more efficient for patients and players.  In a sea of retailing despair, Shoppers is one of a select few that will grow earnings per share in the second quarter of 2008.

He reiterated his buy recommendation and his C$60 price target on the shares.

Analyst Robert Gibson of Octagon Capital maintained his target price of C$51.90 on the shares and his sell rating.

Canadian trends seem to lag the U.S. by about 12 months. Thus, we expect to see continued weak top line growth in 2009 as a result of the conversion from branded to generic drugs.