Baird Downgrades Express Scripts On Industry Instability

Regulatory uncertainty is rising too high for Baird Equity Research to remain bullish on Express Scripts Holding Co ESRX.

The Rating

Analyst Eric Coldwell downgraded Express Scripts to Neutral with an $81 price target.

The Thesis

Previously, Express Scripts’ improving new business trends, its consistency in core profit and loss statements and a better sentiment for pharmacy benefits managers (PBMs) made for an attractive near-term risk-reward profile.

Now, however, Coldwell considers upside dependent on a successful sale to CIGNA Corporation CI. The deal is seen to have favorable odds, but the risk of downside has “significantly increased.”

“PBMs have been under heavy political attack in recent weeks and the stand-alone trajectory is almost impossible to model right now,” Coldwell wrote in a note.

The risk is primarily in recent advancement of plans for rebate-model reform.

“[It] could be material to ESRX profit model and makes long-term stand-alone modeling almost impossible right now,” Coldwell wrote.

Price Action

At time of publication, shares were trading up marginally around $77.

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