Express Scripts (ESRX): Helping to rein in medical costs

By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month Report
From Cabot Wealth Advisory, 7/6/09  Sign up for free Cabot Wealth Advisory e-newsletter

There is one sub-sector of medical stocks that’s still attractive, and that’s companies that are expected to help rein in medical costs in the future.

One of them is Express Scripts, the company that provides pharmacy benefit management services to managed care organizations.

Express Scripts (ESRX) was a great growth stock from 1992 to 2007, but over the past two years it’s been laid low by the bear market; it’s now trading 16% below its peak of 2008, despite the fact that earnings are still growing!  In fact, in the first quarter of 2009, earnings grew 25%, despite the fact that revenues shrank 1% to $5.4 billion. To me, it looks like a good bargain; I think Express Scripts is one of the good guys in the health care establishment. And my opinion is seconded by our expert bargain-hunter, editor J. Royden Ward of Cabot Benjamin Graham Value Letter.

Here’s what Roy wrote in his June issue:

“Express Scripts (ESRX) is the nation’s leading pharmacy benefit manager (PBM) and provides a full range of retail drug card programs and specialty disease management programs. ESRX also sells prescription and generic drugs through its retail network and mail order services.  The company has been growing at a rapid 30% pace for the past 10 years but will slow somewhat in the future. The company is well positioned in one of the fastest growing segments of the health care sector. Express Scripts has agreed to acquire the in-house PBM division of WellPoint for $4.7 billion. The purchase will provide additional sales and earnings growth in future years. We forecast EPS growth of 19% for the next 12-month period. At 16.4 times forward EPS, ESRX shares are very reasonably priced. Buy.”

When Roy wrote that, in early June, the shares of ESRX were trading at 64. Since then they’ve been up to 69 and now they’ve pulled back a little. I think buying in the mid-60s will work out well in the long run.

Editor’s Note: You can read more about Express Scripts and get continuing coverage in Cabot Benjamin Graham Value Letter. There you’ll not only find buy and sell advice for ESRX, you’ll get dozens of other excellent value stock recommendations from J. Royden Ward each and every month. Roy applies the strategy of the father of value investing, Benjamin Graham, to find the market’s best-undervalued stocks. This year he’s already uncovered several stocks that were sold for double-digit profits! Don’t miss out on his next recommendations … click here now to get started today: Cabot Benjamin Graham Value Letter.

Tim LuttsTimothy Lutts
President, Chief Investment Strategist, Editor of Cabot Stock of the Month

Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.