On Sep 18, Walgreens (WAG) revealed that it will offer employer-sponsored health insurance coverage in 2014 to its 160,000 eligible employees. This health insurance will be through private health exchange. This disclosure set in motion a flurry in the stock price of players in the pharmacy benefit management (PBM) space.
The most notable impact was on PBM provider Catamaran Corporation (CTRX) as its shares tanked 8.20% (or $4.54) to $50.82 following the announcement. A possible explanation is that Walgreens’ move to switch to private health exchange through Aon Hewitt Corporate Health Exchange will be a drag on Catamaran going forward.
Catamaran was formed way back in Jul 2012 when Catalyst Health Solutions and SXC Health Solutions Corp. merged and rebranded the combined entity. The erstwhile Catalyst Health Solutions, now under Catamaran has been providing health insurance coverage to Walgreens’ employees since fiscal 2011 when it purchased Walgreens Health Initiatives Inc., the PBM wing of Walgreens. Hence, Walgreens’ recent announcement will hurt Catamaran’s revenues. This raised market concern as reflected in Catamaran’s stock slump.
However, Catamaran is not the only PBM provider that was in the red during the trading hours. Investor concerns that other players in the retail market might follow suit and opt for private health exchange adversely affected other PBM providers as well. Shares of PBM major Express Scripts Holding Company (ESRX) declined 4.64% (or $3.06) on Sep 18.
On the other hand, shares of Walgreens touched a new 52-week high of $55.73 on the said day. The closing price of $55.63 of the largest drug store chain in the U.S. represents a robust year-to-date return of 46.16%. Currently, Walgreens, at an all time high, carries a Zacks Rank #3 (Hold).
Catamaran and Express Scripts are also Zacks Rank #3 stocks. While investors may consider buying these PBM providers on dips, drug retailer GNC Holdings (GNC), carrying a Zacks Rank #2 (Buy) certainly warrants a look.