NEW YORK (AP) -- A Goldman Sachs analyst said Tuesday that Express Scripts Holding Co. is poised for strong profit growth for the rest of this decade after the pharmacy benefits manager completed its acquisition of former competitor Medco Health Solutions.
THE OPINION: Analyst Robert Jones said the $29.1 billion deal makes Express Scripts a "dominant" company in health care. He said the St. Louis company's per-share profit should grow more than 20 percent per year through 2015 and should rise by at least 10 percent per year through 2020.
Jones resumed coverage of Express Scripts stock with a "Buy" rating and placed the stock on the Conviction List, a portfolio of highly recommended stocks. Jones also set a price target of $70 per share.
On Monday Express Scripts acquired Medco for $29.1 billion in cash and stock, and it became the largest pharmacy benefits manager in the U.S. Express Scripts will handle prescriptions for about 135 million people, and Jones noted that, in terms of market capitalization, Express Scripts is now one of the 10 largest health care companies in the U.S.
Pharmacy benefits managers administer prescription drug benefits for employers, government agencies and other clients, using their large purchasing power to negotiate lower drug prices. They make money by reducing costs for health plan sponsors and members.
Jones wrote that business conditions will be difficult for pharmacy benefits managers in the coming years because growth in generic drugs and mail-order prescription filing will slow down, reducing their contribution to profits. He said competition to Express Scripts and CVS Caremark Corp. will get bigger and better, and the federal government will pay for more health care.
However he said Express Scripts is better positioned to deal with those issues than its competitors because of its strong position in the market and its spending strategies.
THE STOCK: Shares of Express Scripts picked up $1.60, or 2.9 percent, to $57.10 in afternoon trading. The shares rose 2.4 percent on Monday and are trading at their highest prices since late July, just after Express Scripts said it had agreed to buy Medco.