Buy Express Scripts at $73, Not Near $77
With now five straight revenue misses and counting, it's time to hop off the Express Scripts (ESRX) bandwagon.
With the stock now trading at around $77 per share, the chart suggests its fair value is closer to $73, or about 6% lower, and where its 100-day moving average sits.
This company was once seen as a solid play on the rising cost in health care, since its business allows it to negotiate drug prices with pharmaceutical companies on behalf of insurers. The stock, however, has traded more on potential than on results. The stock chart suggests investors wait for a better entry point.
Express Scripts shares closed Monday at $77.39, down 1.86%. The stock has declined 11.46% year to date and 16% over past year, underperforming not only the S&P 500 (SPX) in both spans, but also the Health Care SPDR ETF (XLV) - Get Report . If you owned the stock in the past three years, you would be up on 18%, while the S&P 500 and the XLV ETF have returned 27% and 47%, respectively.
Express Scripts hasn't been able to grow revenue fast enough to justify a long-term position in the stock. Revenue, which declined 1% in the second quarter, is projected to grow less than half of 1% this year. And this follows less than 1% growth in 2015. Its second-quarter adjusted claims number of 315.3 million was down 2% in the second quarter, forcing management to lower full-year guidance.
The reduced full-year guidance could increase selling pressure, reversing the 8% climb the stock enjoyed post-Brexit. On the positive side, the stock is not expensive, trading at just 12 times fiscal 2016 estimates of $6.35 per share.
This suggests the market has grown frustrated with the lack of growth. That frustration won't wane anytime soon. The stock looks poised to meet the 100-day average at $73.39 (yellow line), which is about 6% lower.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.