Continued growth at Shoppers Drug Mart Corp. (OTCPK:SHDMF) in the first quarter with no discernible impact from an economic slowdown, has analysts pegging the drug retailer as a good defensive buy.
“If anything, they are seeing increased market share” in the face of a dwindling economy, said analyst Robert Gibson of Octagon Capital in a note to clients, raising his per share earnings estimates in fiscal 2009 to to C$2.72 from C$2.67, and target price to C$51.90. He maintained his "hold" recommendation.
Vishal Shreedhar at UBS Investment Research noted Shoppers “continues to perform in a moderating consumer environment,” in a note to clients. He said:
We view Shoppers as a high-quality company with a defensive earnings stream. Margins continue to benefit from improved mix, increased private label, global sourcing, purchasing power and maturing real estate.
Nevertheless, he noted, Shoppers “trades at trough multiples,” despite continued strong performance, of 19 times forward per-share earnings. Its historical trading range is 19 to 25 times forward per-share earnings, and its average multiple is 22 times per-share earnings. He said:
Given expectations for continued strong performance, we believe that current valuation represents an attractive buying opportunity.
He reiterated his buy rating and C$64 price target, which is based on a multiple of 21.5 times estimated 2009 per-share earnings.
Analyst Irene Nattel of RBC Capital Markets reiterated her top pick rating on Shoppers and a C$66 price target on the stock. In a note to clients she wrote:
Shoppers is trading at the low end of its relative valuation band as well as its own historical valuation range despite strong performance due to investor concerns over the repercussions if Shoppers was to miss the forecasts - which it hasn’t.