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A Cure for Your Correction Blues

Stock (Symbol) Stock Price

Express Scripts (ESRX)

$45

Data is as of Expected to Report Sector

August 24, 2010

Oct 25

Healthcare

Company Description
Express Scripts, Inc. is a pharmacy benefit management (PBM) operating in North America. It offers a range of services, which include health maintenance organizations (HMOs), health insurers, third-party administrators, employers, union-sponsored benefit plans, workers’ compensation plans and government health programs. The Company operates in two business segments: PBM and Emerging Markets (EM). The PBM segment consists of retail network pharmacy management and retail drug card programs, home delivery services, specialty pharmacy services, benefit plan design and consultation, medication therapy and safety through pharmacogenomics, and assistance programs for low-income patients. The EM segment consists of distribution of pharmaceuticals and medical supplies to providers and clinics, distribution of fertility pharmaceuticals requiring special handling or packaging, and healthcare account administration and implementation of consumer-directed healthcare solutions.
Sharek’s Take
David SharekExpress Scripts has your cure for the correction blues. The stock market went into a correction this week, and ESRX is the perfect stock for those people who wish to tone-it-down in the risk department. In fact, ESRX has already corrected and looks to have bottomed around the $45.ESRX is a healthcare stock with consistent revenue each quarter. The Obama administration helps pharmacy benefit managers (PBMs) like ESRX because more people on health plans means more drugs being dispersed — what ESRX does.ESRX acquired Wellpoint’s (WLP) PBM NextRX last year and is 50% through integrating the new company. PBMs make more profits selling generic drugs than brand name ones. NextRX clients weren’t steered towards generics before the merger — they will be now.
One-Year Chart
Express Scripts is a solid selection with a P/E of 18 and profits expected to grow 50% during the next two quarters.   

 

Profit Growth Earnings Table
Express Scripts had profit growth of 36% last quarter, revenues jumped 77%. ESRX had been growing around sales in the single digit range before the NextRX purchase, 2008 revenues were up only 1%, so the revenue bump is purely because of the acquisition. ESRX can be counted on for record profits every quarter. Quarters of consecutive growth are highlighted in green in the Earnings Table. I can remember only one instance when has ESRX did not have record growth, 4QtrsAgo, and that was due to merger related costs.
Beat the Street
ESRX beat the street by a penny in each of the last two quarters. This company usually beats estimates slightly.
Annual Profit Estimates
Annual Profit Estimates for 2011 fell. I’m not concerned about this, overall there was little in this article that made me think less of ESRX.
Future Quarters
Looking out the next four quarters, profit growth looks solid, if not exceptional. Note quarterly estimates didn’t fall even though annual estimates did.
Fair Value
ESRX is worth 25 times earnings — easy. Express Scripts is one of the most underrated stocks in the stock market — and it has been for the last decade. This stock has certainty, consistency and growth opportunity all wrapped up in one easy to care for package.
Year Profits x P/E = Price Upside/Downside
Today 2.50 x 18 = $45  
2010 Fair Value 2.50 x 25 = 63 40%
2011 Fair Value 3.17 x 25 = 79 76%
Ten-Year Chart
The ten-year chart shows ESRX has been one of the top stocks to own during the last decade. This year profits are expected to climb 40%. The stock is also on a correction and this looks like a great entry point for those wishing to buy some ESRX.
Power Ranking Bottom Line
Growth Portfolio

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I love ESRX! The only thing that’s not great is this stock probably won’t get a huge P/E like a tech stock would. Profits for the next four quarters should be stout because the NextRX business will be kicking in full speed.Since the stock market just entered into a correction, Express Scripts is ranked 2nd out of 17 stocks in the Growth Portfolio. I love the stability this stock provides for investors with moderate risk tolerance levels. Express Scripts has the cure for your correction blues.ESRX is ranked 4th out of 11 stocks in the Aggressive Growth Portfolio Power Rankings. Other high-beta stocks like Apple (AAPL), Baidu.com (BIDU) and Priceline.com (PCLN) provide more punch in this focused portfolio.
Aggressive Growth Portfolio

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