July 23, 2010 / 7:30 PM / 7 years ago

Shoppers Drug shares tumble as analysts trim forecasts

* Shares fall more than 4 percent

* Raymond James lowers price target to C$39

* RBC Capital Markets lowers 2010 EPS forecast to C$2.70

* TD Newcrest lowers price to C$38, EPS to C$2.72

TORONTO, July 23 (Reuters) - Shoppers Drug Mart SC.TO shares fell nearly 6 percent on Friday as analysts lowered their outlook for Canada’s biggest drugstore chain, a day after it issued a soft 2010 forecast.

Shoppers stock, which fell nearly 6 percent to as low as C$33.55, was down 4.4 percent or C$1.55, at C$34.05 on the Toronto Stock Exchange by late afternoon.

“The limited specifics on cost-cutting initiatives in response to recent regulatory changes, and relatively disappointing front-store results give us pause,” wrote Raymond James analyst Kenric Tyghe in a note. Tyghe reduced his price target to C$39 from C$42.

Irene Nattel of RBC Capital Markets trimmed her 2010 earnings per share forecast to C$2.70 from C$2.75, but maintained her C$44 stock price target.

Investors have been focused on the company’s outlook for some hints about the impact of Ontario’s new drug pricing initiatives, some of which came into effect July 1, which many pharmacies have said will hurt revenues and profits.

Ontario has cut the price of generic drugs to 25 percent of branded equivalents and eliminated the rebates stores received from drugmakers. Similar legislation is expected this fall in Quebec.

“Shoppers is clearly facing a daunting task and is expected to come out the other side with a much improved market position, but not without enduring its share of battle scars,” TD Newcrest analyst Michael Van Aelst said in a research note.

Van Aelst revised his price target to C$38 from C$39 and revised his EPS estimates to C$2.72 from C$2.78 for the year.

The pharmacy chain, which operates a network of nearly 1,200 stores across the country, said on Thursday it saw full-year 2010 earnings per share coming in between C$2.66 and C$2.72. This was the first time in years that Shoppers has given EPS and EBITDA guidance, according to Van Aelst.

It also lowered its estimates for pharmacy same-store sales growth to between 1 percent and 2 percent for the year.

“We believe (Shoppers) remains in a state of flux, with fewer available levers to pull than was widely expected,” Tyghe wrote.

$1=$1.04 Canadian Reporting by Solarina Ho; editing by Rob Wilson

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