drugstore.com Strong, Long-Term

drugstore.com, Inc. (DSCM - Snapshot Report), is a leading provider of online health, beauty, wellness, personal care, vision and pharmacy solutions. The company operates primarily in the U.S. and Canada, but its products are available to consumers worldwide.

The company believes its online stores, including drugstore.com, beauty.com, and visiondirect.com, offer a better way for consumers to shop for these products. Customer loyalty is strong. Repeat customers accounted for 82% of its sales in 2007.

drugstore.com reported in-line results for the fourth quarter, but management remained cautious with its outlook for the first quarter of 2009. Despite its cautious guidance, we think investors should look past the company's 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. We think these initiatives could produce strong long-term earnings growth. We rate drugstore.com a Buy with a $3.00 target price.

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