Market Overview

Boom Goes The Dynamite For Express Scripts?

Pharmacy benefits provider Express Scripts (Nasdaq: ESRX) is down almost 4% after the company said in its 8-K filing with the Securities and Exchange Commission (SEC) it could face legal action from WellPoint (NYSE: WLP), the Indiana-based health benefits provider.

Through the first three quarters of this year, WellPoint accounted for nearly a third of Express Scripts' revenue, the Wall Street Journal reported. From the filing:

“Express Scripts, Inc. (“Express Scripts”) and its client WellPoint, Inc. (“WellPoint”) are involved in a contractual dispute regarding certain terms of the Pharmacy Benefits Management Agreement entered into by the parties on December 1, 2009 (the “PBM agreement”). The dispute, raised by WellPoint, relates to the contractual interpretation of certain terms in the PBM agreement and certain operational matters associated with Express Scripts' performance thereunder. Although WellPoint has raised the possibility of litigation to resolve these matters, the parties have been seeking to settle these matters through discussions, and Express Scripts believes that the parties will be able to resolve these matters satisfactorily.

“ However, Express Scripts cannot provide any assurance that such matters will be settled without litigation. Furthermore, while it is not possible to determine the ultimate outcome of the matters in dispute, Express Scripts does not expect the resolution of these disputed matters, in the aggregate, to have a material adverse effect on Express Scripts' financial condition, consolidated results of operations, cash flows or business, although there can be no assurance in this regard.”

The news could add even more pressure to shares of Express Scripts, which are already down 19.5% year-to-date. The stock closed below critical support at $45 today and if selling accelerates on Wednesday, a breach of the 50-day moving average is possible. From there, there's not much in the way of material support until the stock reaches the mid-30s.

As of this writing, Express Scripts had no press statements related to the WellPoint news on its Web site.

ACTION ITEMS:

Bullish: Traders who believe that Express Scripts is going to rebound might want to purchase long-dated call options on the stock. Bearish: Traders who believe that Express Scripts is going to slide may consider an alternate positions: CVS Caremark (NYSE: CVS) or MedcoHealth Solutions (NYSE: MHS) Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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