Needham funds recently released its 4Q FY 2014 commentary. Its portfolio managers – Chris Retzler and John O. Barr - believe the strong dollar is hurting sales of capital goods and consumer goods company which have sizable international presence. So, an ideal strategy for 2015 is to focus on the companies which derives their revenues predominantly from the US market. The fund managers have talked about their holdings like Dick's Sporting Goods (DKS) and CarMax (KMX) which are domestic retailers, and Express Scripts (ESRX), Reis (REIS) and Constant Contact (CTCT) which are predominantely US based. Here's a look at Express Scripts in detail.
Express Scripts is the largest PBM (pharmacy benefit management) company in the United States, offering a full range of services to its clients, which include managed care organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans, workers’ compensation plans and government health programs. Pharmacy benefit management companies work to develop innovative strategies designed to keep medications affordable. The company manage the cost of the drugs by performing the following functions:
- Evaluating drugs for price, value and efficacy in order to assist clients in selecting a cost-effective formulary
- Leveraging purchasing volume to deliver discounts to health benefit providers
- Promoting the use of generics and low-cost brands
- Offering cost-effective home delivery pharmacy and specialty services that result in drug cost savings for plan sponsors and co-payment savings for members
Express Scripts work with clients, manufacturers, pharmacists and physicians to increase efficiency in the drug distribution chain, to manage costs in the pharmacy benefit chain and to improve members’ health outcomes and satisfaction.
The company's EPS forecast for the current fiscal year is $4.88 and next year is $5.45. According to the consensus estimates, its top line is expected to decline 3.70% current year and grow 2.10% next year. It is trading at a forward P/E of 15.4. Out of 25 analysts covering the company, 17 are positive and have buy recommendations, and 8 have hold ratings.
The work of PBM companies is becoming increasingly critical these days. Customers are facing unprecedented cost increase driven by double-digit brand inflation, the continued 15% to 18% inflation of specialty drugs and overwhelming regulatory burden. They are now taking a more proactive approach in managing their healthcare decisions. These trends represent growth opportunities for Express Scripts and allows it to use its scale, alignment and innovation to create solutions such as home delivery programs, narrow networks, restricted formularies and specialized care.
Express Scripts' team of experts are combining three capabilities to drive better decisions and healthier outcomes. These are actionable data, behavioral sciences and clinical specialization. These capabilities serve as a foundation for the company's Health Decision Science which enables it to foster better collaboration, accelerate innovation and create innovative suite of solutions.
The company recently signed an agreement with AbbVie Inc. (ABBV) to provide its Viekira Pak hepatitis C drug in exchange of discounted pricing. According to Needham's portfolio managers, this agreement verifies Express Scripts strategy of controlling cost of new megadrugs. Express Scripts is trading at 15.4 times its FY2015 EPS. Analysts are expecting the company's adjusted EPS to grow 12.70% in FY2014 and 11.70% in FY2015. Given the company's long term growth potential, I believe it is a good buy.
