Shoppers on regulation change

Posted: June 24, 2009, 3:00 PM by Jonathan Ratner
Market Call, Shoppers Drug Mart, legislation

Could changes to the dispensing powers of pharmacists be a boon for Shoppers Drug Mart Ltd.?
Analyst Robert Gibson of Octagon Capital notes pending or already enacted legislation across Canada will lead to changes in pay for pharmacists by their home provinces, although there will not be much clarity on the issue until 2010.

“We believe that the fee the pharmacist will get for extending, adapting, or adjusting a prescription, for example, will be less than what doctors are charging for a similar service,” Mr. Gibson wrote in a note to clients, hiking his target price on the stock to $57 from $49.25. He maintained his "buy" rating on the shares. “Thus, it is in the provincial governments’ interest to proceed.”

The services would have to be more profitable than filling prescriptions, Mr. Gibson reasons, or they will not be adopted by the pharmacist.

“We believe Shoppers will push heavily for their pharmacists to embrace these changes, assuming it adds to the bottom line. We also believe this will be a process that evolves over a number of years.”

His target was based on applying a multiple of 18 to his 2010 per share earnings estimate of $3.16.
Hollie Shaw

Bilibala's comments:
Drug store in Canada are all regulatory protected so they can charge regular customers by a higher profit margin than US. With the issue of aging, rising in drug cost and the above change, Shoppers Drug Mart should be able to enjoy great profit and steady growth opportunities.