Barron’s on Express Scripts

Vito J. Racanelli at Barron’s has good things to say about Express Scripts ($ESRX):

Express Scripts will continue to benefit from all the long-term tail winds we’ve noted in previous items about the company: good growth in generic drugs in response to brand drug inflation; an aging U.S. population; health-care reform, expanding health coverage, and ongoing drives to reduce drug costs.

In particular, its mail and specialty pharma business is high margin and keeps growing well, adds Retzler. The firm has one of the best pharmacy-benefit management systems around, with all clients on a single information platform, making it easier to, for example, update for new rules, regulations, and formulas, he adds.

It doesn’t hurt that Express Scripps happens to be a well-managed company with a good balance sheet, too, with $9.3 billion in net debt, and a debt to equity ratio of about 40%.

Here’s a company getting good growth at a time when it seems only Internet stocks are showing that, Retzler notes. Mr. Market’s sell-off has rendered Express Scripts valuation reasonable again, he says. By various metrics, the stock is significantly cheaper than its long-term history. The price/earnings ratio of 16 is below the median of 22, and attractive given the company’s 2014 EPS guidance.

Express Scripts is a solid business that should recover if the bull market continues and should also prove defensive should a bear market unexpectedly appear. The new worries should recede over the next two to four quarters. As that happens, a 10% rise from here over the next 12 months seems, well, fair.

Q2 earnings are due out in another month. They had lowered full-year guidance, but as Racanelli notes, it’s still for EPS growth of 12%.

Posted by on June 22nd, 2014 at 11:22 pm


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