Shoppers Drug Mart Corp (SC.TO)

Almost like they are in a regulated market. A good part of their business has significant pressure on it to bring prices down. Doesn’t expect there will be any change in this. The drug side was a good part of the profitability side.

Lowered his one-year target price from $48-$47 but still likes the name. Thinks they will be the biggest beneficiary of these deflationary headwinds. It will hurt the smaller players more. Their game plan is to buy the smaller players. Good company.

Has been trading on either side of 2X Book Value. Strangest pattern he has seen in a long time. Suggests to him that the market is very uncertain as to whether they should call this company a “recovering growth stock” or a “growth stock that is now failing”. Has not made up his mind yet. 2.4% dividend.

Stock has been pretty dead for the last couple of years. Have some challenges on the profitability side. Notwithstanding the fact that they continue to roll out new stores and grow their square footage they have been very challenged on the prescription side due to some regulatory legislative changes. Stock has never been a cheap stock and he doesn’t see a whole lot of upside. 2.5% dividend yield.

Generating so much free cash flow that they don’t know what to do with it so they are buying back shares and raising dividends. Facing competitive risks but they have terrific real estate. Canadian demographics is that we are getting older and we have to keep going to the pharmacies more often. Looking for them to grow earnings at 3%-5% a year.

Felt that they had been trapped in a range but Ontario government announced that they would be paying pharmacists $7.50 to give flu shots. Also announced other changes giving pharmacies the right to renew prescriptions. So the government is basically trying to get you out of the doctors’ offices for anything minor.

(A Top Pick Sept 22/11. Up 5.71%.) Sold half his holdings at over $44. Feels there is still a lot of deflation coming in prescription drugs. However, the last quarter demonstrated why he likes it. A powerful industry consolidator and a lot of pharmas are going to be able to be competitive. There is a trend towards higher generic usage, meaning more margins for them. Very effective retailers. Good costs discipline.

Really well managed company. Got hit by regulations that didn’t allow them to make profits on generics that they were making. This took a lot of growth potential out of the company but have been able to reengineer themselves to deal with the retail side and generating more profits. Growth rate is not what it used to be and there is more pressure coming from new retailers. He could see a 5%-10% move in the stock but he would want better.