drugstore.com Strategy Embraced

drugstore.com (DSCM - Snapshot Report) reported in-line results for the third quarter, but management was cautious with its fourth quarter outlook due to the slowdown in e-commerce activity that began in September. Despite its cautious guidance, we think investors should look past the near-term results and focus on the company strategy to achieve profitable sales growth over the long term.

Its strategy includes increasing share in the over-the-counter market, growing its international business, entering new partnership arrangements, and expanding into higher margin product lines. drugstore.com believes that it can double its total sales and increase its gross profit margin to 30% by 2013.

If those targets are achieved, we estimate that drugstore.com can produce earnings per share of at least $0.30. Due to the company's potential for strong long-term earnings growth, we rate drugstore.com a Buy with a $3.00 target price.

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