Jefferies Comments on Express Scripts (ESRX), Great Long-Term Pick for Investors

September 12, 2011 11:25 AM EDT
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Price: $72.54 -0.18%

Rating Summary:
    11 Buy, 17 Hold, 2 Sell

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    Up: 22 | Down: 34 | New: 34
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Jefferies is reiterating its Buy rating and $69 price target on shares of Express Scripts (NASDAQ: ESRX) while calling it "the most miss-priced stock in our coverage universe."

The firm hosted a series of investor meeting in which the company's CFO Jeff Hall and VP of Investor Relations David Myers attended.

At the meeting, management indicated that the Medco Health Solution (NYSE: MHS) acquisition remains on track and reaffirms is closing outlook of mid 2012. Synergies from the acquisition are still estimated to be $1 billion, which includes negative synergies.

Express Scripts has recently offered Walgreens (NYSE: WAG) a contact offering rates in the middle of all pharmacies in the ESRX network, and has announced the deal to hire a third party to reassure these rates. Walgreens has not yet responded to the offer, but has announced how displeased they are with ESRX. The company has most recently sued WAG for false advertising and a breach of contract.

Jefferies reports that if a deal is not found between the two, it would be more incremental to Walgreen's earnings, around $1.5 billion to its gross margin, and that ESRX would only lose less than 5 percent of their total scripts. Due to the substantial loss to WAG, the firm believes that a deal will be reached by the end of the year. The current contract expires on December 31, 2011.

An analyst at Jefferies comments, "Outside of the MHS acquisition and WAG contract dispute, it's business as usual for ESRX. FY12 selling season is in its final stretch with FY13 selling season set to begin in March 2012. The generic wave during 2012, which includes generic Lipitor, should be a big driver of earnings growth for ESRX. While generic Lipitor is scheduled to hit the market in December 2011, a legal dispute between Ranbaxy and the FDA could complicate the timing of the release. We hope to get more clarity on this issue in the coming weeks."

For more ratings news on Express Scripts click here and for the rating history of Express Scripts click here.

Shares of Express Scripts closed at $43.67 yesterday.

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