Monday, February 27, 2012

Shoppers Drug Mart 2

I own this stock (TSX-SC). I had followed this stock for a number of years before I bought it for the TFSA account in January 2009. I bought more in January 2010 and January 2011. By May of 2011 I started to feel that I should be investing differently for my TFSA so I sold some shares in May of 2011. Basically, I have broken even on this stock.

Everyone, including Directors have more options than stocks. This is unusual as under most companies, directors tend to have more shares than options. There has been a bit of insider buying, but nothing like insider selling which is $3.6M and net insider selling at $3.4M. Selling has all been by officers of the company and they seem to be cashing in on options.

There are 162 institutions that own some 41% of the shares of this company. They had bought and sold shares over the past 3 months and during this time they have decreased their shares in this company by 3.1%.

I get 5 year median low and high Price/Earnings ratios of 14.45 and 18.58. The current P/E ratios of 13.64 would appear to be relatively low. However, as I noted yesterday, P/E ratios are declining on this stock. I get a Price/Book Value Ratio of 2.02 which is only 60% of the 10 year median P/B Ratio of 3.31. This shows a good relative price. However, P/B ratios have also generally been declining.

I get a Graham price of $36.63 and the current stock price of $40.50 is some 10% higher. The 10 year median low difference between the Graham Price and the stock price is the stock price being some 48% higher than the Graham Price. However, this difference between the Graham Price and Stock price has also been declining.

The current Dividend yield at 2.62% is almost 40% higher than the 5 year median Dividend yield of 1.88%. Dividend yields have been going up and dividend increases have been going down. Even though the 5 year growth in dividend is 15%, the most recent increase was for 6%. I do not think that the past growth in dividends reflects the future growth.

The tests that I look at are meant to help me determine if the current stock price is relatively reasonable compared to the past. This can give you a good idea about what is a reasonable price for a stock. However, this assumes that, say a growth stock is still a growth stock. The problem with this stock is that it is clearly transitioning from a growth stock to a non-growth or more stable stock.

Personally, I think that the stock price is between a mid and high price. For example, I think that the P/E range for this stock would be between 10 and 15. So a P/E at 13.64 would be between mid and high, because a mid-point would be at 12.5. However, one analyst I read thought that a P/E of 14 was a reasonable one for this stock.

Jean Coutu Group has 5 year median low and high P/E ratio of 10.6 and 13.2. Loblaws has 5 year median low and high of 13.2 to 17.8. The Price/Book Value Ratio of 2.02 is a reasonable one. The Dividend yield is quite good for a consumer stable stock.

When I look at analysts’ recommendations, I find Strong Buy (few), Buy and Hold (lots). The consensus recommendation would be a Hold. One analysts with a Buy recommendation said that you should buy for raising dividends and great cash flow. He goes on to say that it is long-term buy. One hold said that the stock was overpriced and a good current price would be in the low $30’s.

The dividend watchdog blogger recently blogged about this company. The Dividend Ninja also blogged about this company recently. The Blogger Martailer also had an interesting blog on this stock at He talks about how Target and Shoppers will be completing for in Canadian pharmacists for its franchise system.

There has been no end to trouble at Shoppers. See Shoppers Drug Mart shares fall after generic drugs ruling at the G&M. Also, an earlier one titled Shoppers results still hit by drug rules at the G&M. The same sort of story is repeated as Shoppers downgraded as independent pharmacies stay afloat at the Financial Post.

I have not yet decided what I will do about this stock. However, it has been a disappointing buy so far.

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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