Market Overview

Canadian-Based Jean Coutu Is Getting Cut On Bay Street

Share:

Canadian-based Jean Coutu Group PJC (OTC: JCOUF) is a drugstore operator with over 360 locations in New Brunswick, Ontario and Quebec. Its stock also trades on the Toronto Stock Exchange under the ticker "PJC.A."

Shares of Jean Coutu traded at new 52-week lows on the Toronto Stock Exchange as changes to pharmacy rules in Quebec is expected to weigh on pharmacy companies bottom line. As noted by The Globe and Mail, the province is reportedly eliminating a 15 percent cap on professional allowances paid to individual pharmacists by generic drug manufacturers.

The publication further noted that if the move is ratified by the Quebec government, it will "soften the blow" of a $177 million per year cutback in fees from the province.

In a report published Tuesday, Toronto-based CIBC analyst Perry Caicco stated that the proposed changes would be "quite damaging" for Pro Doc, the company's generic manufacturer.

"Nobody knows exactly how far back the rebates will sprint (from the current 15 percent, or when they will start," Caicco wrote. "But it's possible that the rebates will at least double, and that could trim $30 million off Pro Doc's (and Jean Coutu's) EBITDA."

With that said, the analyst maintained a Sector Perform rating on Jean Coutu with a price target lowered to C$22 from a previous C$25.

Also commenting on the proposed changes, BMO Capital Markets Toronto-based analyst Peter Sklar stated that there is "significant uncertainty" around potential changes to pharmacy regulations in Quebec for two reasons. First, pharmacy dispensing fees are expected to be reduced, and the company could chose to provide support to franchisee-pharmacists. Second, the cap on allowances could be eliminated and pose the danger of impacting its Pro Doc segment.

Jean Coutu held a conference on Tuesday to discuss its first quarter results, which were "slightly negative" but the main topic of the call was the proposed changes in Quebec. According to the analyst, the company noted that the proposed changes could be implemented 60 days following the consideration of the Treasury Board which is expected to occur "shortly."

Given the uncertainty, shares were reiterated with a Market Perform rating with a price target lowered to C$23 from a previous C$24.50.

Posted-In: BMO Capital Markets CIBC Jean Coutu Perry Caicco Peter SklarAnalyst Color Price Target Analyst Ratings

 

Related Articles (JCOUF)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
VRTXSunTrust Robinson HumphreyInitiates Coverage On235.0
TSLXRBC CapitalInitiates Coverage On23.0
TEVAJP MorganUpgrades
REGNSunTrust Robinson HumphreyInitiates Coverage On360.0
RCUSSunTrust Robinson HumphreyInitiates Coverage On20.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

Live Cattle Sharply Lower

Lean Hogs Lower