Desjardins Analyst Prefers Relative Predictability of Drug and Food Stores

by: FP Trading Desk

Analyst Keith Howlett of Desjardins Securities continues to prefer the investment prospects of drug stores and food stores in the shaky retail sector.

He wrote in a note to clients:

Given the high level of uncertainty with respect to the 2009 earnings of discretionary retailers, we continue to prefer the relative earnings predictability of drug store and food stores.

Mr. Howlett has a “buy” rating on Loblaw Cos. Ltd., Jean Coutu Group Inc. (OTCPK:JCOUF), Metro Inc. (OTCPK:MTRAF) and Shoppers Drug Mart Corp. (OTCPK:SHDMF). “We think it is too early to look through the coming economic storm in 2009, despite the increasingly attractive valuations of Canadian discretionary retailers.”

The analyst said both Shoppers and Jean Coutu are involved in a paradigm industry shift from moving the sales of prestige beauty and skin care products away from department stores and into off-mall pharmacy locations. “The issue will be whether market-share gains will offset any potential overall decline in consumer demand for prestige cosmetics in a recession,” he said.

Recent conference calls at Estee Lauder (NYSE:EL), L’Oreal (OTCPK:LRLCY) and Avon (NYSE:AVP) have suggested their management are concerned about demand falling demand in U.S. cosmetics.