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Express Scripts Holding Company Message Board

  • toonawish toonawish Oct 24, 2013 7:04 AM Flag

    PBM's Will Grow Though Acquisitions

    OK; I Grok the PBM model!

    Navigating the variety of drug treatments available for any individual indication & ensuring that the least expensive / safest & most effective medications are making it to patients is a mind numbing exercise that you would think the health care insurance industry would be best able to provide (apparently not...)

    There's a lot of potential for abuse with whoever handles this problem in a "for profit" business.

    Merck had too much conflict of interest & couldn't make it work.

    CVS has yet to prove whether they can manage it or if they're just a bunch of shopkeepers.

    Walgreen's wishing they'd gotten into the business before ESRX achieved such enormous scale.

    The industry appears mature & the only organic growth squirts I see are from new entrants into the health insurance markets via the Affordable Healthcare Act (short term growth / poor people don't have any $) & increased mail order deliveries (high quality growth & a margin expansion kicker.)

    Personally; I expect they'll make a major push to add meds to the mail order biz & after they digest Medco they'll expand capacity by building distribution facilities in Memphis or Nashville (FedEx & UPS logistics hubs.)

    Price increases should provide modest earnings growth in line with inflation.
    Aging population should also add to the bottom line incrementally.

    Acquisitions are another key to major revenue growth.
    (There may be some arbitrage plays on undervalued acquisition candidates..?)

    ESRX has low capital spending needs & high free cash flow!

    This Paz guy seems to be a fair capital allocator & will probably continue to enhance value through smaller acquisitions & share repurchases.

    As acquisition targets dry up (there's still a lot of fragmented firms in the biz) we could see a dividend at around 30% payout.

    I'm making a small initial pos & going long puts & short calls to average into a larger pos.
    (10 year horizon here; no quick in/out me droogies...

    Sentiment: Buy

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    • All reasonable points except acquisitions, ESRX has virtually no room to consolidate in the present PBM business segment due to regulatory restictions and could only expand into adjacent markets. Unfortunately, they do not have the strategic vision, leadership or confidence to go outside the box at all. The path for this investment is in stock buybacks and a possible dividend down the road.

      Sentiment: Hold

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