Opinions
Michael Decter
Catamaran Corp
CCT-T
PAST TOP PICK
Nov 07, 2014
Stock price when the opinion was issued
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A pharmacy benefits management company. Basically provides transparency for companies and communities that are looking to end up reducing drug costs. They cover 350 million prescriptions each year across 32 million members. Produces significant free cash flow. Earnings are expected to grow by 21%, and then accelerate to 34% in the coming 2 quarters. Stock appears to be breaking out of a 3 years sideways trading band.
(A Top Pick Dec 20/13. Up 16.35%.) Started as a company that wired together 25 pharmacies for the Ontario government to improve drug dispensing. Since then, they have transformed themselves into a US PBM (Pharmaceutical Benefits Manager). Companies and governments running drug plans hire them to run their drug plans for them. They negotiate good prices and get better utilization. This company is very good at what they do.
In this environment, he is looking for things that he thinks are not expensive and that have some growth potential. He likes the area they are in. This is basically moving healthcare and the distribution of pharmaceuticals more onto an online system like the Obama care. They throw off cash and use their cash to make acquisitions to fill in their product line. Trading at about 18-19 times forward earnings.
United Health has made an offer for the stock. He waited a few weeks to see if another offer would come through. What bothered him about the deal is that this would be dead money until the deal closed. To have a name sitting there going sideways for the next 5-6 months would not have been very beneficial to the performance in his portfolio. United Health is a phenomenal company, and you couldn’t have asked for a better name to be taking this over. There might be something to look for, in how they treat it from a tax perspective. There is always some risk of an antitrust situation or some other regulatory situation. He doesn’t think the deal will fall apart.
(A Top Pick Dec 20/13. Up 6.8%.) There was a good deal of volatility in this, based a little bit on whether Obama care was going to create more business or turbulence in the US healthcare market. It is becoming clear now that Obama care has succeeded in its goal of additional enrolled people. Obama care has succeeded in expanding the covered population, but has not had much success in retaining costs, and this company is in the sweet spot for containing costs. Thinks coverage will continue to expand, which will drive more demand to contain drug prices, which will mean more business for this company.