Express Scripts Holding Company (NASDAQ:ESRX) shares are down more than 13 percent after the company announced it is likely losing Anthem Inc (NYSE:ANTM), its largest client, after Anthem’s current contract ends in 2019.

Growing Concerns

The news is obviously a blow to Express’s business, but Baird analyst Eric Coldwell says the news shouldn’t come as a surprise. Anthem has sued Express claiming that is has been overcharged for services in the past. Anthem currently accounts for about a third of Express’s EBITDA. For now, Coldwell says Express without Anthem is worth around $53 per share.

“Unless Anthem is behaving irrationally, this says things about ESRX and about the PBM industry: either another PBM is promising massive savings — so much so that ANTM will wait three years and absorb an implementation headwind—or ANTM thinks it can do better on its own or with a hybrid model,” Coldwell explained.

Coldwell said Express confirmed five fears Baird had about the stock prior to the announced loss of Anthem:

1. Anthem accounted for 33 percent of Express earnings and was growing much faster than the rest of Express’ business.
2. Express is overearning on a per-share basis.
3. Without Anthem and other transitioning clients, Coldwell projects long-term growth for Express’ core business at just 2–4 percent.
4. Express’ desire to be independent seemingly limits the potential of M&A growth.
5. The loss of Anthem single-handedly altered Baird’s projected 2020 EPS projections for Express from $9.1 to $5.56.

In Conclusion...

For now, Coldwell says even short-term traders should stay away from Express until it hits the low $50s.

Baird maintains a Neutral rating for Express but has lowered its price target from $73 to $53.

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