Deutsche Bank Downgrades Express Scripts (ESRX) to Sell on Anthem Risk

Deutsche Bank downgraded Express Scripts (NASDAQ: ESRX) from Hold to Sell with a price target of $61.00 (from $93.00). Analyst George Hill expressed concern about potential earnings revisions tied to Anthem (NYSE: ANTM) risk.

"Given the acrimony between Express Scripts and its largest client Anthem, we increasingly believe Express Scripts is heading towards a significant negative earnings revision as it relates to Anthem, and that the market is not fully discounting this risk. Anthem indicated it believes it over pays ESI by ~$3B on an annual basis, and while that number may overstate the earnings risk to ESI, we do not believe the underlying risk tied to Anthem is fully reflected in the share price. Given the risks of negative EPS revisions, and where we expect the shares to trade upon resolution, we see ~11% potential downside to current levels," said HIll.

The analyst added, "Following Anthem’s announcement of the $3B figure, we reached out to many pharmacy benefits consultants and PBM executives to sanity check this figure. We have also tried to approach the math several ways, which are laid out in this report. While $3B would be a huge earnings figure on a business that’s approaching a $17B run rate, it is not out of the realm of possibility. We estimate the figure is likely closer to $2B, and believe that Anthem may believe it is entitled to ancillary earnings streams that do not directly result from its book of business."

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 $68.01 yesterday.

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