Stock (Symbol) |
Express Scripts (ESRX) |
Stock Price |
$67 |
Sector |
| Healthcare |
Data is as of |
| March 24, 2016 |
Expected to Report |
| Apr 26 – May 2 |
Company Description |
 ESRX is a pharmacy benefit management company. ESRX offers a range of services to its clients, which include managed care organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans, workers’ compensation plans and government health programs. ESRX has two business segments: PBM and Other Business Operations. ESRX PBM segment involves management of outpatient prescription drug utilization to drive pharmaceutical care. Under the Other Business Operations segment, the company operates two additional brands through its subsidiaries: CuraScript Specialty Distribution, which distributes specialty pharmaceuticals and medications to treat rare and orphan diseases directly to providers, clinics and hospitals in the United States, and Matrix GPO, which supports the needs of its membership. ESRX subsidiary United BioSource provides consulting services for pharmaceutical manufacturers. Source: Thomson Financial |
Sharek’s Take |
 Pharmacy Benefit manager (PBM) Express Scripts (ESRX) fell after its largest client Anthem threatened to not renew their contract which ends in 2019 unless ESRX provides an additional $3 billion in drug savings. ESRX stock fell from around $85 to $75 on the news, and was $67 when I updated my charts this qtr. My take on all this is Anthem is just looking for a better deal. The PBM industry is always under consolidation, and now there’s just three big players: ESRX, CVS Caremark and United Health’s OptumRX. United Health is a competitor to Anthem, so that’s out. In the end ESRX should be able to negotiate a new deal as it’s President pointed out “I can’t think of a time, with any client, where we’ve had a contractually defined price review where we’ve reached a point where we couldn’t ultimately settle it out“. ESRX got the Anthem business when it bought out Anthem’s PBM business a few years ago. With ESRX we have a stock with an estimated long-term growth rate of 13% selling for just 11x earnings. It has a good safety rating and management buys back stock to fuel profit growth, including $5.5 billion in 2015. ESRX usually sells for around 15x earnings, but the risk of losing Anthem has scared investors. My 2016 Fair Value is 15x earnings or $92 a share — 37% higher than today’s price. |
One Year Chart |
 ESRX has delivered two straight qtrs of 12% profit growth. Estimates are for 11%, 8%, 12% and 13% the next 4 qtrs. Last qtr the company met analyst estimates, but lowered next qtr’s est. by 6 cents and holding 2016 estimates steady. This stock is a really good deal at 11x earnings. |
Fair Value |
 I have held ESRX for more than a decade now. It used to be a 20% grower, then a 15% grower and now it looks like a 13% grower. Still, the stock has climbed steadily along the way as its median stock price has only gone up each year during the last decade. Note this stock sold for 15x earnings three of the last four years. My Fair Value is 15x earnings, which would mean a move of 50% by next year if profit estimates hold true. |
Bottom Line |
 Express Scripts is a conservative stock that’s expected to grow profits in the double-digits and sells for just 11x earnings. In my book 12x earnings is usually a low-point for good stocks, and I anticipate ESRX will bounce back. The Anthem news might take years to play out, but I guess the issue should eventually be resolved. This stock ranks 30th of 33 in the Growth Portfolio Power Rankings as it is one of the slowest growers in this portfolio. In the Conservative Growth Portfolio it ranks 24th of 34 stocks in the Power Rankings. |
Power Rankings |
Growth Stock Portfolio
30 of 33Aggressive Growth Portfolio N/AConservative Stock Portfolio 24 of 34 |
