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Express Scripts: Loyal Clients Will Keep This Stock Climbing

January 23, 2012 | About:
With its base of operations in North America, Express Scripts Inc. (ESRX) is what is known as a pharmacy benefit management (PBM) company. It offers an impressive array of services to its clients. It services HMOs (Health Maintenance Organizations), government health programs, health insurers, third-party administrators, worker's compensation plans, and health insurers.

One share costs about $50. This is close to the high point of its 52-week range of $60.89, the low point having been $34.47. The average trading volume for Express Scripts Inc. has been 6,764,310 for three months. It does not yield a dividend, the earnings per share is $2.54, and the P/E ratio is 19.88. Its five-year expected price/earnings to growth ratio is 1.02. This company has a profit margin of 2.9% and operating margin of 5.19%. Its return on assets is 13.96% and return on equity is 48.84%. As always, there is that specter of debt; total debt of the most recent quarter is $3.99 billion and the debt-equity ratio for the same period is 184.28. The current ratio is a bit on the low side at .64.

Express Scripts sized up well with its competitor, the privately held Medco Health Solutions Inc., which had a revenue of $65.97 billion. Its year-on-year quarterly revenue growth, however, falls short when compared with the industry: Express' is 2.8% and the industry’s is 24.3%.

This company’s market capitalization is $24.58 billion. The enterprise value is $27.17 billion. Its quarterly earnings growth year on year is 7.7%.

Express Script Inc. was incorporated in September 1986. Its business is organized into two segments, Pharmacy Benefit Management (PMB) and Emerging Markets (EM). How does this company generate its revenue? By the distribution of prescription drugs via its network of pharmacies, EM services, home delivery and specialty pharmacy services. If one goes deeper into its activities, one could end up feeling very impressed. The range of services offered is very wide and in-depth.

Its growth figures, while taken on their own, are rather good. Well, at least they are not in the red! The growth estimated for 2012 is 20% and for 2013 is 21%. The past five-year growth rate per annum has been 27.41% and for the next five years is set at 16.32% annually. It has a high price target of $66. If you got in now, that would guarantee you a 32% return on your investment right there, assuming the price did reach that nice high.

There has been a rise in the use of generic drugs. Intermediary players have been the ones to benefit.

In October 2011, the research firm Oppenheimer initiated action on this share to Outperform.

In November 2011, Express Scripts’ intention to purchase Medco Health Solutions was frowned upon by a community group of pharmacists, the Pennsylvania Pharmacy Council. This was because they believed it would have a possible devastating effect on community pharmacies and care of patients. The deal would create the country’s largest PMB with about $1 billion in sales. The council said that community-based pharmacies are important for more reasons than one, especially the one-on-one care and counsel given to patients in their time of need: The Medco takeover could put an end to all that personalized attention. This was a bit of a blow to Express, counterbalanced by the fact that seven U.S. lawmakers backed the Medco/Express Scripts deal. A speedy and efficient review of the multibillion dollar deal was urged. In favor of this merger, it was stated that this deal could drive down costs in the field and make for more efficiency, and this would certainly benefit patients. Access to critical drug therapies would be increased and greater competition would be created.

Express Scripts offers programs to educate its clients. It has a clinical pharmacy department. It also has formulary development expertise.

This company’s name was seen again in headlines where it is quite used to being, when it was mentioned in the Wall Street Transcript’s Investing Strategies Report. It was said here that the market had likely overreacted to Express Scripts which had dropped over 40% when concern arose about it terminating its agreement with Walgreens (WAG). This in addition to the Medco issue which caused the decline in 2011. Despite all this, Express Scripts has retained 95% of its client base. Its P/E ratio may be too low to expect much growth over two years. Its growth is fueled by the increased use of generic drugs and patents for branded drugs soon to be expiring.

About the author:

Doug Ehrman
Buy low and sell high is easier in theory than in practice– and that’s where we come in.

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