Today's top news stories from Report on Business:
Shoppers Drug Mart stock hit hard
Shoppers Drug Mart Corp. SC-T shares fell sharply today, losing almost 10 per cent to close at $38.92, as analysts slashed their price targets on the stock and calculated the hit the pharmacy chain will take from Ontario's drug reform to lower the cost of pharmaceuticals. Most analysts decided the hit will be painful from the measures announced yesterday, which include a reduction in the cost of generic drugs to 25 per cent of the price of an original brand name, down from 50 per cent, and the elimination of “professional allowances” from generic drug makers to pharmacists. Dispensing fees will rise. Some analysts fear, too, that the reform proposals could spread to other provinces. Shares of Quebec's Jean Coutu Group PJC.A-T also fell. Here's a sampling of some analysts today:
• Desjardins Securities analyst Keith Howlett, citing the “draconian nature” of the reforms and the “possibly severe short-term pain” to Shoppers, downgraded the stock to “sell” and estimated the chain's annual earnings per share could be cut by 40 cents to 60 cents.
• TD Newcrest analyst Michael Van Aelst cut his 12-month price target on the stock to $40 from $52, his 2010 earnings-per-share estimate to $2.95 from $3.04, and his 2011 estimate to $3.24 from $3.45. Said Mr. Van Aelst: “Suffice it to say, it just became a lot less profitable to run a pharmacy in Ontario and, eventually, probably Quebec as well … Now the question becomes: To what degree do other provincial governments follow what is, in our opinion, a dangerous precedent? Quebec, for one, is likely to be first.”
• Credit Suisse analyst Winston Lee also cut his target to $42 from from $50, his 2010 earnings-per-share estimate by 30 cents to $2.64 and his 2011 projection by 31 cents to $2.92. “We estimate total losses to Ontario pharmacy may run as high as $600-million in year one from a combination of lower generic drug prices, elimination of professional allowances, which are only partially offset by increased dispensing fees,” he said.
• CIBC World Markets analyst Perry Caicco cut his price target to $43 from $47, his 2011 earnings-per-share projection to $2.92 from $2.96, and his 2011 estimate to $$2.84 from $3.25. Wrote Mr. Caicco: “The Ontario government's plan to cut pharmacy reimbursement seriously haircuts drugstore profitability in Ontario. The amount take from drugstores with the slashing of generic prices is not remotely balanced by givebacks in dispensing or other fees.”
• UBS Securities Canada analyst Vishal Shreedhar left his price target unchanged at $49 and, while saying he believes Shoppers can “manage” the reform, still warned that the chair will probably cut pharmacy services and hours in Ontario. “Our largest concern is a potential ricochet effect as other provinces aim to mimic similar pricing terms as the Ontario government,” he said. “We note that Quebec and Newfoundland and Labrador have a most favoured nation provision which require that the price offered to the provincial drug plans be equal to the lowest provincial drug prices in Canada.”
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Shoppers plunges on Ontario plan
Drugstore giants take on Ontario
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Greece crisis deepens
Investors hammered Greek stocks and bonds today as the country's debt crisis deepened, spreading to global markets and sparking speculation that the government may have to seek aid from the EU and International Monetary Fund. Greek borrowing costs spiked to their highest since the country joined Europe's currency union in 2011 as the spread between 10-year Greek government bonds and their German equivalents, considered the European benchmark, widened sharply.
Stock and currency markets had calmed after the EU and IMF agreed to a support package for Greece, but fears over a potential debt default and concern about Greek banks reappeared since the Easter break.
“Despite everything the EU and the euro zone have done there is still a lack of clarity (and) confusion about what they intend to do, when they intend to do it and how much would be involved,” Chris Pryce, the senior Greece analyst for the Fitch ratings agency, told the Reuters news service. “It is now up to the Greek government to go publicly to the EU and IMF and ask for the cash and the support.”
