Tuesday, January 4, 2011

Shoppers Drug Mart 2

This is the company (TSX-SC) I have bought for my Tax Free Savings Account. The stock has not done very well since I have bought it. To date, my total return, including dividends, is -9.7% per year. Just under 2% of my return is in dividends. This stock on one of the dividend lists that I follow of Dividend Aristocrats (see indices).

When I look at the insider trading reports, I find that there was an extremely minor bit of insider buying in February 2010. There has been no insider selling over the past 12 months. This is a stock where the insiders have far more stock options than shares. However, the insiders seem to be retaining their stock options. Of course, the company showed faith in future earnings by increasing the dividends in 2010.

I get a 5 year median low Price/Earnings Ratio of 16 and a 5 year median high P/E Ratio of 21.3. Because of recent trouble, this company has been having the P/E Ratios have to dropping. The current P/E ratio I get is 14.2. Sites that use the last 12 months of earnings to get a current P/E Ratio have a slightly higher one of 14.7. The P/E ratios are comparatively low for this stock. In absolute terms, the P/E Ratios are moderate.

I get a Graham Price of $34.41 so; the current stock price of $39.53 is some 15% above this price. On a relative basis, this is good for this stock. 2010 was the first year that this stock fell below the Graham Price and it was some 4% lower. The 10 year average low is 50% above the Graham price. The current dividend yield is 2.3% and the 5 year average is just 1.6%. The last thing to look at is the Price/Book Value Ratio and at 2.10, it is only some 62% of the 10 year average of 3.38.

On a lot of scores, the current price looks cheap. The problem when a stock price looks cheap is that it could be cheap for very good reasons. In the case of this stock, it has had problems with this recession and also because of the new Ontario Legislation that reset the price for generic drugs. B. C, Alberta and Quebec have also announced that they will cut the price of generic drugs, but not as severely as Ontario has. However, if a stock has short term problems that they can overcome, then getting the stock cheap can be an advantage.

When I look at analysts recommendations, I find Strong Buy, Buy, Hold and Sell recommendations. Most of the recommendations are a Hold. There is only 1 Sell that I can find. The consensus recommendations would be a Hold. (See my site for information on analyst ratings.)

Analysts with the Hold recommendations give a 12 month stock price between $40 and $41. The Analysts with the Strong Buy and Buy recommendations say that it is a long term buy. No one expect this stock to do well over the next year and say that recovering will be over the next year or 2 years. Analysts with Hold recommendations say the same thing. They all think that this company has a strong balance sheet and good management.

This is a low dividend and average to higher risk retail stock. It is not one to start a portfolio with, but could be one to purchase after you have enough in utility and financials stocks in your portfolio. The problem with retail stock is that they tend to get hit hard whenever there is a recession. You probably need a large, well diversified portfolio to consider this stock.

Shoppers Drug Mart Corp. is a licensor of Shoppers Drug Mart in Canada and Pharmaprix in Quebec. The company owns and operates Shoppers Home Health Care stores. It also owns MediSystem Technologies Inc. and the new Murale Stores. This is a widely held company. Its web site is here Shoppers . See my spreadsheet at sc.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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