5 Concerns Express Scripts Confirmed With Its Announcement It Will Likely Lose Anthem Business

Express Scripts Holding Company ESRX shares are down more than 13 percent after the company announced it is likely losing Anthem Inc 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.

Related Links: Salary? What's A Salary? The Highest Paid Execs By Stock Holdings

Could Pharmacy Benefit Managers Be Trump's Next Target?