Express Scripts (ESRX) Price Target Raised to $96 at UBS on Possible WLP Renegotiation/Extension

UBS maintained a Buy rating on Express Scripts (NASDAQ: ESRX) price target of and raised its price target to $96.00 (from $82.00). Analyst Steven Valiquette discussed a Wellpoint contract extension.

"As the five-year midpoint of the 10-year Wellpoint/Anthem contract has been reached, there continues to be chatter about a 'mid-term' price check. Recall in Dec 2009 ESRX/WLP executed a contract in which ESRX would pay ~$4.6 bil upfront to essentially acquire WLP's in-house PBM for a fixed period of 10 years. In this deal, ESRX gained all the profitability related to the asset. While other PBM/managed care deals signed since then (CVS/Aetna & CTRX/Cigna) have had different economic splits, these other deals also involved no upfront payments from the PBM to the MCO. WLP has seemingly signaled contract terms could shift more in favor of WLP in renegotiations. ESRX has not identified any specifics in relation to this, but we take a hypothetical view on prospects of CY15 renegotiations altering contract profitability starting on 1/1/16."

"Based on our estimate of ~300 mil adjusted Rx and ~$1.1 in EBITDA for the WLP book in '16, we estimate the contract would account for ~13% of ESRX '16 EPS, or ~$0.80. While the terms of a theoretical change are unknown, we assume a hypothetical ~20% profit reduction in a revised contract in exchange for an extension of the contract for another 5+ years beyond late 2019. This would translate into a ~$0.16 EPS hit to our '16 EPS of $6.16. So we take a conservative stance and lower our 2016 EPS to $6.00," he added.

For an analyst ratings summary and ratings history on Express Scripts click here. For more ratings news on Express Scripts click here.

Shares of Express Scripts closed at $82.88 yesterday.

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