Grab Express Scripts (ESRX) as Tift with Walgreens (WAG) Fades - Barron's

June 11, 2012 3:44 PM EDT
Express Scripts Holding Co. (Nasdaq: ESRX) shares are sharply lower Monday despite a bullish outlook in Barron's over the weekend.

Most of the pressure on Express Scripts stems from its rift with Walgreen (NYSE: WAG), as well as potential integration risks with newly-acquired Medco Health. Express Scripts stock is down just over 10 percent from highs near $59 in 2012, but, ignoring the daily ups and downs of the market, Barron's said this might be a good entry point for a defensive pharmacy benefit manager like Express Scripts.

The reasoning is simple: Walgreens and Express Scripts might start pushing each others 'like' buttons real soon. On June 1st, the duo agreed to drop a lawsuit filed by Express Scripts against Walgreens over certain marketing practices.

Another point is Walgreens overall sales numbers, which aren't great after the company and Express Scripts parted ways in 2012. April comparable-store sales dropped 6.4 percent and comps have been negative for the first four months of the year.

Further, Express Scripts shares are basically flat since the $29 billion merger with Medco was announced last July. Sector peers are up an average of 8 percent since, with the broader U.S. market up 20 percent. Some expect a few speed bumps along the way, but for the most part, there should be about $1 billion in synergies over the first full year.

Shares are going for 14 times earnings with enterprise value to EBITDA at 10 times. P/E is significantly below its 10-year median while EV to EBITDA is near historical lows.

Completion of the integration will be a nice feature for investors, but they won't have to wait too long. Each completed milestone will return more and more, with one bull expecting the stock to rise to $60 over the next 12 months, a 15 percent premium to Monday's trading range.

Shares are down about 2.1 percent in late trading.

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