ESRX

4 Opportunistic Stocks To Consider Buying in 2015

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The Valuentum Buying Index (VBI) is a philosophy that considers the valuation of a company and the likelihood that a company’s stock will converge to a cash-flow derived fair value estimate. The VBI accepts the view that value is based on the sum of a company’s future expected discounted free cash flows and the excess cash on its balance sheet, while acknowledging that market participants must eventually agree with a firm’s underpricing (and buy the stock) in order to drive the stock’s price to fair value. An underpriced stock with no buying support is not poised to generate good returns, nor is an overpriced stock with good momentum as it will eventually succumb to panic selling once euphoria fades. Stocks … Read more

HCV Competition Not New “News” for Gilead

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Let’s set one thing straight. On a fundamental basis, biotech firm Gilead Sciences (GILD) is performing quite well, contrary to what its recent stock price move might suggest. Prescriptions for the firm’s Harvoni and Sovaldi hepatitis-C drugs continue to track slightly ahead of projections, and we would expect a slightly stronger-than-forecast fourth-quarter report as a result. In coming periods, we look forward to positive management commentary that speaks to the strength and sustainability of the firm’s hepatitis-C franchise (about half of Gilead’s sales). Any commentary, in light of the recent uncertainty and growing competition in the hepatitis C market, will be reassuring for investors that have been anxiously pursuing tax-loss selling and profit-taking in Gilead’s shares the past few weeks. … Read more

Weak Food Sales Spoil Walgreens’ Third Quarter

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The US’ largest drug store chain, Walgreens (click ticker for report: ), reported lackluster third quarter results Tuesday morning, but the results did not deviate enough from our forecast to warrant a change in our valuation. Revenue increased 3.2% year-over-year to $18.3 billion, falling slightly short of consensus estimates. Earnings per share were also a bit lighter than consensus expectations, increasing 18% year-over-year to $0.85 per share on a non-GAAP basis. Although results were only marginally below consensus estimates, we believe the negative reaction can be attributed to the weak comparable-store sales growth in front-end items (candy, soda, etc.), which carry higher gross margins. Front-end same-store sales increased just 0.4% in the third quarter, even though the company benefited from … Read more

Evaluating the Industry Structure of Managed Care Organizations

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Structure of the Managed Care Industry The managed care organization (MCO) and health insurance/benefits industry is concentrated, competitive, and still consolidating. The largest publicly-traded MCO by members is WellPoint (WLP), which serves more than 66.5 million individuals through its health plans, but UnitedHealth (UNH), Aetna (AET), Humana (HUM), Cigna (CI), Centene (CNC), Health Net (HNT), and WellCare (WCG) are other key players in the industry. Revenues are generated primarily from insurance premiums and, to a lesser extent, from administrative fees and net investment income. Expenses are dominated by benefit expense (the cost of health care services), though overhead (selling, general and administrative expense) is also a material portion of the cost structure of the group. Operating margins for some constituents have hit … Read more

Walgreens’ Strong Fourth-Quarter Report Overshadowed By Fall Out with Express Scripts

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Walgreens (WAG) reported strong fiscal fourth-quarter results Tuesday that showed solid revenue and earnings expansion. However, the lack of progress on key contract negotiations with pharmacy benefit manager, Express Scripts (ESRX) left us a bit disappointed overall, to say the least. Nonetheless, our $34 fair value estimate for Walgreens remains unchanged at this time. Walgreens’ fourth-quarter sales advanced 6.5% thanks to a 4.4% increase in comps (stores open for more than a year), while earnings per share increased over 16%, excluding an after-tax gain associated with the sale of its pharmacy benefits management business (adjusted net earnings increased 10.1% during the period). Prescription sales (nearly two thirds of revenue) jumped 5.7% during the quarter, as the number of prescriptions filled … Read more

How to Think About Corporate Tax Reform

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CVS Health at the Crossroads, Too Much Debt

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We have been disappointed with the lack progress displayed by CVS Health thus far in 2017. We knew the business was entering into an earnings trough as a result of key contract losses, but recent events have unfolded that, in our view, have lessened the attractiveness of its business model, to a meaningful degree. Let’s talk more about what’s happening at CVS Health, the changing PBM market, Amazon’s threat, and too much leverage. We’re not overreacting, but we’re not happy either. By Alexander J. Poulos “CVS Health hasn’t performed as we would have hoped during 2017, and frankly, it has been hit by a storm of negativity, not the least of which has been caused by the disruptive threat of … Read more