An aging populace, plus likely, renewed emphasis on health and wellness in the United States bodes well for many health care players, and pharmacy benefits manager Express Scripts, Inc. (Nasdaq: ESRX) is one.In general, analysts see F2009 revenue for ESRX falling about 1-2%, exclusive of results from WellPoint, Inc. (NYSE: WLP), which Express Scripts agreed to acquire earlier this year, pending approvals.
Analysts also expect better-than-adequate growth in new accounts, and good account retention. Further, President Obama's proposed health care reforms that will speed biogenerics is expected to provide impressive long-term earnings growth opportunities for PBMs, such as Express Scripts. Also, in F2010, ESRX's larger size will enhance its bargaining power versus drug makers. The First Call FY2009/FY2010 EPS estimates for ESRX are $3.73 to $4.36.
The risks include the loss of key clients, a failure of the proposed WellPoint purchase to be approved, or government reform that moves too assertively into the prescription sector as an active player.
Stock Analysis: Express Scripts is a moderate-risk stock. Consider buying a 25% position in ESRX now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your ESRX position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $36.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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