An active pharmacy benefits manager should smooth the path between patients and their prescription medications. There is an outfit in St Louis that handles the job well. It was the recipient of Fortune's first-ever "Streetie Award" for the best overall performance by any company.

Express Scripts (NASDAQ: ESRX) is one of the largest pharmacy benefit management companies in North America, serving over 50 million members through managed-care organizations, insurance carriers, employers and workers compensation groups. Services include network-pharmacy claims processing, formulary management, home delivery services, drug-utilization review, disease management and medical-data analysis services. The company also distributes a full range of injectable and infusion biopharmaceutical products directly to patients.

Express Scripts Inc. (NASDAQ: ESRX) stock is trading much lower today after competitor Walgreen Co. (NYSE: WAG) announced a 4% Q4 profit drop, and missed earnings expectations by 7 cents, sending the stock spiraling down over 12% in early trading. If you think this stock could get hurt by the same issues as WAG and won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on ESRX.

The stock has been climbing gently over the past several months, reaching a one-year high of $56.08 on Friday. This morning, ESRX opened at $55.20. So far today the stock has hit a low of $53.48 and a high of $55.30. As of 11:05, ESRX is trading at $54.67, down $1.15 (-2.1%). The chart for ESRX looks bearish with significant improvement, while S&P gives the stock an encouraging 4 STARS (out of 5) buy rating.

For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $60 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in 7 weeks as long as ESRX is below $60 at November expiration. Express Scripts would have to rise by more than 10% before we would start to lose money.

ESRX has never been above $60, and could be held down by resistance at the $55 level.

Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: At publication time, Brent neither owns nor controls positions in ESRX.

MOST NOTEWORTHY: GlaxoSmithKline plc (NYSE: GSK), Express Scripts, Inc (ESRX), SanDisk Corp (SNDK), Halliburton Co (HAL) and Texas Instruments (TXN) were some of today's noteworthy upgrades.

• Deutsche Bank upgraded GlaxoSmithKline plc (NYSE: GSK) to Buy from Hold.

• Express Scripts Inc (NASDAQ: ESRX) was upgraded to Strong Buy from Buy with a $113 target at First Albany, following the stronger-than-expected first quarter results.

• SanDisk Corp (NASDAQ: SNDK) was upgraded to Buy from Hold at Citigroup.

• Halliburton Co (NASDAQ: HAL) was added to AG Edwards Focus Portfolio. The firm believes Halliburton trades at a great discount to its largest peer, Schlumberger Ltd (SLB), despite an improved earnings outlook and progress on several issues.

• Texas Instruments (NASDAQ: TXN) was upgraded to Buy from Hold at Gabelli to reflect strong first quarter results and valuation. Piper Jaffray upgraded shares of Texas Instruments to Outperform from Market Perform...
  

OTHER UPGRADES:

• Keefe Bruyette upgraded shares of BancFirst Corp (NASDAQ: BANF) to Market Perform from Underperform following its first quarter report.

• Raymond James raised Cardinal Health, Inc (NYSE: CAH) to Outperform from Market Perform.

• Matrix USA raised H.B. Fuller Co (NYSE: FUL) to Hold from Sell based on the company's sales growth.

• Baird raised Snap-on Inc (NYSE: SNA) rating to Outperform from Neutral with a $55 target.

• Bear Stearns upgraded shares of Cummins Inc (NYSE: CMI) to Peer Perform from Underperform.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: The pharmacy benefit managers sector, financials E*Trade Financial Corp (ETFC) and TD Ameritrade Holding Corp (AMTD) and transports J.B. Hunt Transport Services (JBHT) and Knight Transportation (KNX) were today's most noteworthy initiations:

• CIBC is positive on the pharmacy benefit managers group given increasing generic utilization, continued growth in specialty pharmacy, improving mail-order penetration and share repurchases. CIBC initiated Express Scripts, Inc (NASDAQ: ESRX) with a Sector Outperformer and $104 target as the firm expects continued strong performance as the company benefits from positive secular industry trends, and initiated Medco Health Solutions (NYSE: MHS) with a Sector Performer and $82 target on valuation.
• BMO capital started E*Trade Financial Corp (NASDAQ: ETFC) and TD Ameritrade Holdings Corp (NASDAQ: AMTD) with Outperform ratings.
• Cathay Financial started J.B. Hunt Transport (NASDAQ: JBHT) and Knight Transportation (NYSE: KNX) with Neutral ratings.

OTHER INITIATIONS:

• BMO started Charles Schwab Corp (NASDAQ: SCHW) with a Market Perform rating
• Citigroup started NYSE Euronext (NYSE: NYX) with a Buy rating and $113 target.
• AG Edwards initiated shares of La Jolla Pharmaceutical Co (NASDAQ: LJPC) with a Buy rating and $11 price objective.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: ABN Amro Holding NV (ABN), Werner Enterprises, Inc (WERN), Affiliated Computer Services, Inc (ACS) and Express Scripts (ESRX) were today's more notable upgrades:

• Citigroup upgraded ABN Amro Holding NV (NYSE: ABN) to Hold from Sell as the firm believes value can be realized by breaking the company up and selling units to top bidders.

• UBS upgraded both Werner Enterprises (NASDAQ: WERN) and Affiliated Computer Services to Neutral from Reduce, based on valuation.

• Express Scripts (NASDAQ: ESRX) was upgraded to Outperform from Market Perform at Leerink Swann.

OTHER UPGRADES:

• JP Morgan upgraded Clorox Co (NYSE: CLX) to Overweight from Neutral.

• Bank of America upgraded shares of Tiffany & Co (NYSE: TIF) to Buy from Neutral with a $52 target. The firm believes Tiffany can improve profitability through better operations, efficiency and downside protection from the strong luxury cycle.

• Credit Suisse added Office Depot, Inc (NYSE: ODP) to its U.S. Focus List. The firm believes that Office Depot has the most attractive risk/reward profile in the industry and sees limited downside risk given recent weakness and reduced investor expectations.

• Kaufman upgraded Best Buy Co, Inc (NYSE: BBY) to Buy from Hold with a $59 target.

• Goldman Sachs upgraded Nvidia Corp (NASDAQ: NVDA) to Buy from Neutral with a $33 target, citing valuation.

• Lehman Brothers upgraded Cadbury Schweppes plc (NYSE: CSG) to Overweight from Equal Weight.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MOST NOTEWORTHY: Today's notable upgrades include SanDisk Corp (SNDK), Cabela's Inc (CAB) and Knightsbridge Tankers Ltd (VLCCF):

• CIBC upgraded shares of SanDisk Corp (NASDAQ: SNDK) to Sector Outperformer from Sector Performer with a $50 target. The firm finds the risk/reward compelling due to a rebounding NAND outlook for Q4 and 2008 and the probability of Hynix signing a watershed licensing deal.

• Matrix USA upgraded Cabela's Inc (NYSE: CAB) Inc to Hold from Sell as retail operations have improved, providing a boost to fundamental trends.

• JP Morgan upgraded shares of Knightsbridge Tankers (NASDAQ: VLCCF) Ltd to Neutral from Underweight based on valuation and increased time-charter contract coverage.

OTHER UPGRADES:

• Merrill Lynch upgraded Gilead Sciences, Inc (NASDAQ: GILD) to Buy from Neutral to reflect improved prospects for long-term growth of the company's HIV-franchise.

• UBS resumed coverage of Express Scripts, Inc (NASDAQ: ESRX) with a Buy rating, up from its previous Neutral rating.

• Deutsche Bank upgraded Valspar Corp (NYSE: VAL) with a Buy from Hold and $34 target.

• HSBC upgraded Dow Chemical Co (NYSE: DOW) to Overweight from Neutral as the firm believes a joint venture with Reliance could trigger a valuation re-rating with a higher multiple, offsetting any EPS dilution.

• Caris upgraded Seagate Technology (NYSE: STX) to Above Average from Average as the firm believes Seagate has too many structural advantages over the competition.

• Buckingham upgraded TJX Cos (NYSE: TJX) to Strong Buy from Accumulate with a $33 target.

• Lehman Brothers upgraded Volkswagen ADS (OTC: VLKAY) to Equal-Weight from Underweight.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

At long last, the CVS (NYSE: CVS), Caremark Rx (NYSE: CMX), Express Scripts (NASDAQ: ESRX) menage-a-trois has been settled. CVS will acquire Caremark Rx for $26.5 billion. Bidding for Caremark Rx by both Express Scripts and CVS has been going on in public for several months. Due to pressure from Express Scripts, which had sought to acquire Caremark Rx to form a huge pharmacy-benefits management company, CVS will pay a hefty premium after sweetening the deal on three separate occasions to beat back acquisition overtures from Express Scripts. Up to the proverbial last minute, Express Scripts insisted it would meet or exceed any CVS offer if only Caremark Rx would be more forthcoming with company information. According to Dinah Brin of The Wall Street Journal, Express Scripts had offered 0.426 of its own shares plus $29.95 in cash for each Caremark share. It also agreed to a penny per share daily fee during the closing period. Federal antitrust regulators had concerns about this deal, which again opened the door for another offer by CVS.

CVS will pay 1.67 of its own shares plus $7.50 in cash for each Caremark share. CVS shareholders will own 54.5% of the new company, while Caremark Rx shareholders will own 45.5 %. CVS had argued in print that the Express Scripts' proposal would create a company that was so highly leveraged it would rate a "junk" credit rating. Also, the combined Express Scripts-Caremark company would be many times larger than any deal Express Scripts had previously negotiated. It would be very difficult for Express Scripts to integrate Caremark into a combined company.

Express Scripts management had argued that both Express Scripts and Caremark are pharmacy-benefits management companies, whereas CVS is a drug retailer trying to acquire a pharmacy-benefits company it does not understand and will not know how to run.

CVS and Caremark management estimated half a billion dollars in cost savings annually from the combined company, with annual revenues closing in on close to $1 billion by some optimistic estimates. The combined company hopes to use its size to increase bargaining power against Walgreen Company (NYSE: WAG), Wal-Mart Stores, Inc. (NYSE: WMT) and Medco Health Solutions, Inc. (NYSE: MHS), the nation's largest pharmacy-benefits management company.

MOST NOTEWORTHY: CVS Corp (CVS), Express Scripts, Inc (ESRX) and Goodrich Petroleum Corp (GDP) were some of today's more notable initiations:

• CVS Corp (NYSE: CVS) was reinstated at Credit Suisse with an Outperform and at JP Morgan with Neutral ratings.

• Express Scripts (NASDAQ: ESRX) was reinstated at Credit Suisse with an Outperform rating, up from its Neutral rating, and resumed at Bank of America with a Buy rating. JP Morgan reinstated Express Scripts share with an Overweight rating.

• Goodrich Petroleum (NYSE: GDP) was initiated with an Overweight rating at JP Morgan.

OTHER INITIATIONS:

• Jefferies initiated Cellcom Israel Ltd (NYSE: CEL) with a Buy rating and $21 target.

• CIBC initiated 3SBio Inc (NASDAQ: SSRX) with a Sector Outperformer rating and $17 target; the firm said 3SBio Inc offers the broadest range of BioGenerics in the Chinese market and views the company as an execution story and country play.

• Cowen started G-III Apparel Group, Ltd (NASDAQ: GIII) with an Outperform rating based on expectations of market share growth to be driven by new brands and products.

• BMO Capital Markets expects Riverbed Technology, Inc (NASDAQ: RVBD) with a Market Perform rating.

• Lazard started Synta Pharmaceuticals Corp (NASDAQ: SNTA) with a Buy rating; Bear Stearns initiated shares of Synta with an Outperform rating.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Express Scripts Inc (NASDAQ: ESRX) upped its offer for Caremark RX Inc (NYSE: CMX) last night. Express, a pure pharmaceutical benefits management company, or PBM, is in a battle with CVS Corporation (NYSE: CVS), the pharmacy chain, over Caremark.

Express supposedly raised its offer over concerns that it will soon receive a second request from regulators. This would most likely mean the deal would not close for another six to nine months. CVS and Caremark have already received regulatory approval with the shareholder vote coming in a few weeks.

This is a bizarre transaction in that a PBM like Caremark has never merged with a pharmacy chain like a CVS. Shareholders believe Caremark management and board is acting in their own best interests rather than the interest of shareholders. Actually, there are few sell-side analysts or shareholders who know the industry well who actually see the business merits of the two companies merging.

Meanwhile, as this battle unfolds, it appears the fundamentals for this industry are improving. Medco and Express both reported very strong results and guided to strong results.

Express' management is very well-respected and most believe would do a very good job working with Caremark. The battle is set for the shareholders' meeting set in the next few weeks. We will see if Express increases their offer again prior to the shareholder meeting.

MAJOR PAPERS:

• A full page advertisement by CVS Corporation (NYSE: CVS) in this morning's Wall Street Journal (subscription required) warned Caremark Rx Inc (NYSE: CMX) shareholders that their "[investments] would be at risk" under Express Scripts' (NASDAQ: ESRX) proposal and recommended the CVS/Caremark merger. Also in the Journal:
• Investors at Clear Channel Communications Inc (NYSE: CCU) believe they are being short changed and have started a showdown with private equity buyers.
• The NYSE Group Inc (NYSE: NYX) and the Tokyo Stock Exchange are expected to announce an alliance.
• US Airways Group (NYSE: LCC) may increase its offer for Delta Air Lines (OTC: DALRQ).
• The Financial Times (subscription required) featured articles on News Corporation (NYSE: NWS) and Corus Group ADS (NYSE: CGA).
• News Corp's MySpace is close to launching local versions in Canada and Mexico.
• Tata Steel is expected to top CSN's offer for Corus Group at a takeover auction on Tuesday.

OTHER PAPERS:

• USA Today wrote that two years ago, Verizon Communications' (NYSE: VZ) Verizon Wireless turned down the opportunity to be the exclusive distributor of the iPhone in the U.S. because of Apple Inc's (NASDAQ: AAPL) financial terms and other demands.
• Investor's Business Daily's "New America" column mentioned Universal Stainless & Alloy Products (NASDAQ: USAP) positively, writing that Universal is looking to expand abraod with little foreign competition. The specialty steel products company focuses on the aerospace and power industries and named Boeing Company (NYSE: BA) as a key customer.

MOST NOTEWORTHY: Verisign (VRSN) and Entergy (ETR) led a light upgrade list Monday morning as the Dow and Nasdaq moved higher in early trading.

• Lehman upgraded VeriSign, Inc. (NASDAQ:VRSN) to Overweight from Equal Weight, saying it expects the company's upcoming restructuring and pending sale of the Jamba ringtone business to result in improving prospects for 2007 and investor sentiment.
• BMO Capital upgraded Entergy Corp. (NYSE:ETR) to Outperform from Market Perform, target to $110, indicating that its earnings will accelerate over the next four years.
• Wachovia upgraded Express Scripts, Inc. (NASDAQ:ESRX) to Outperform from Market Perform, citing the recent sell-off, which the firm believes is overdone; it has a $74-$82 valuation range for ESRX.

OTHER UPGRADES:

• Merrill Lynch upgraded Unilver (NYSE:UN) to Neutral from Sell, saying the recent quarter represented the first signs of recovery.
• Finally, First Albany upgraded Lionbridge Technologies, Inc. (NASDAQ:LIOX) to Strong Buy from Buy, target to $10, citing Q3 results and price weakness.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

U.S. stocks sold off today on fears economic growth will slow in the spring of 2007 resulting in weaker corporate earnings per share.

CVS Corporation (CVS) and Caremark Rx, Inc. (CMX) confirmed a merger of equals. Caremark shareholders will receive 1.67 shares of CVS Corporation for each share of Caremark. Both companies option volume was heavy as arbitrageurs, speculators and hedgers adjusted their positions. Both companies option trading implied volatility migrated to 29, near the 26-week average for both CVS Corporation and Caremark. Walgreen's (WAG) and Express Scripts (ESRX) both sold off on the uncertainty of how Caremark and CVS Corporation's new business model will change the prescription market.

The S&P 500 is down .81%, NASDAQ 100 is down 1.45%, The Dow is down 54% and the 10 year bond rate declined to 4.560%. The CBOE VIX was up .44 to 11.54.

The Canadian government indicted it plans to introduce a tax next year on distributions paid by trusts. Canadian energy trusts sold off. Canetic Res Trust (CNE) was down 2.93 to $14.79 and Canetic Res Trust's December option implied that volatility rose to 39 from 27.

Enerplus Resources (ERF) was down 8.14 to $45.16 and it's December option implied that volatility rose to 32 from 23.

Harvest Energy Trust (HTE) was down 4.33 to $25.03 and it's December option implied that volatility rose to 38 from 22 according to Track Data.

Option volume leaders today were Garmin Ltd. (GRMN), Apple Computer, Inc (AAPL), Newmont Mining Corporation (NEM), CVS Corporation (CVS), Qualcomm, Inc. (QCOM) and Dell, Inc. (DELL).

Options Update is provided by Paul Foster and TheFlyOnTheWall.com (subscription required).