Express Scripts Gains From Increased Generic Utilization

On Jun 27, we issued an updated research report on St. Louis, MO-based pharmacy benefit manager Express Scripts Holding Company (NASDAQ:ESRX) . The company currently has a Zacks Rank #3 (Hold).

Express Scripts rides high on increased generic utilization, shift toward mail orders, strong specialty growth and an aging population. Due to economic volatility in the U.S., thanks to political turbulence, people are increasingly shifting to high-margin generic drugs and are adopting cost-saving initiatives like mail orders.

Express Scripts is working to improve its high-touch service model through the Accredo product line, while leveraging on scale and expertise to control costs. The company’s SafeGuardRx product line is also a key catalyst for long-term growth. SafeGuardRx is a collection of novel solutions in the pharmacy benefit space that provides health care at pocket friendly rates, emphasizing on cost efficiency for customers.

On the flipside, Express Scripts recently announced that its biggest customer – the leading health insurer Anthem Inc. (NYSE:ANTM) – is not likely to extend its pharmacy-benefits management agreement, which is slated for expiration by 2019-end.

In Mar 2016, Anthem had sued Express Scripts for overcharging its drugs and operational failures. Per management, Anthem has refused to participate in further talks on pricing concessions and probable adjustments for the agreement. In fact, Anthem is likely to terminate its long-term PBM contract with Express Scripts by next year.

In the first quarter, Anthem accounted for about 18.3% of net revenues for Express Scripts.

Share Price Performance

Express Scripts’ performance lacked luster over the last three months. The company lost 0.7%, comparing unfavorably with the Zacks categorized Medical Services sub-industry’s addition of almost 8%. Furthermore, the current level lags the S&P 500’s return of 4.7% over the same time frame.

However, a long-term expected earnings growth rate of 12.5% instills confidence in investors. In fact, the current year estimate revision for the stock has been stable at $6.97 over the last two months.

Key Picks

A few better-ranked stocks in the broader medical sector are Inogen Inc. (NASDAQ:INGN) and Luminex Corporation (NASDAQ:LMNX) . Notably, both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen has a long-term expected earnings growth rate of 17.50%. Notably, the stock represents an impressive one-year return of 86.6%.

Luminex has a long-term expected earnings growth rate of 16.25%. Additionally, the stock represents an impressive one-year return of 5.2%.

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