Opinions
Gordon Reid
Express Scripts Inc
ESRX-Q
COMMENT
May 05, 2015
Stock price when the opinion was issued
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(A Top Pick March 24/15. Down 15.31%.) He still likes this. Prescription Management Services is a great industry. At the start of the year, the entire sector just fell off a cliff. People had decided that healthcare stocks were so 2015, and didn’t want to own them anymore. He thinks that was overdone. He is still Buying.
He is buying a lot of this. The only independent pharmaceutical benefits company left standing. The main reason it is down is that one of its customers, Anthem (ANTM-N), (30% of its revenues), is suing because they want a better deal and some upfront payment. People are worried that in 2019, when their deal comes to an end, that Anthem won’t re-sign with them. Shares were almost $90 a few months ago, and are now at $67, so he thinks the problem is already priced into the stock. Meanwhile this is a big generator of free cash flow, and using all its free cash flow to buy back stock. Retiring its shares at a dramatic level.
(A Top Pick Nov 23/15. Down 21.3%.) The fundamentals are fine. They are having record earnings this year and are guiding for record earnings next year. Unfortunately, they announced that one of their biggest customers, Anthem, is shopping around its contract, which is going to hurt earnings. Also, they got a couple of subpoenas. The sentiment for healthcare is horrible.
There are rumours that Amazon (AMZN-Q) is going into the drug area. For the American people, that would be a wonderful thing, because it would provide transparency and price for drugs, which they don’t have. Chart shows this has been in a downward channel since the middle of 2016. Fundamentally, it is not looking strong. If he owned, he would set a Stop on it, looking to get out.
He is not sure about the seasonality of this, but technically, it has been in a longer-term downward trend, and just recently broke the downward trend. It's now trending higher and is outperforming the market. It’s broken above 2 resistance points. He would stick with this for a trade coming into springtime.
A pharmacy benefits manager (PBM) which basically creates a large buying pool on behalf of their holders. Thinks this whole group is interesting, but he has chosen to play it by owning CVS Health (CVS-N), which owns a company called CareMark, a competitor of this company. He would prefer CVS Health instead.