This chart of ERSX, above, shows how the price behavior of ERSX has been different from the general market this fall. The general market, i.e. DJIA or S&P 500, came back in the period, with higher lows and higher highs, but not ERSX. ERSX broke below its 200-day simple moving average in late August and has traded back and forth around the flat 200-day. We can see a death cross by end of September as the 50-day average went below the 200-day. There is a bearish divergence in October and November between the higher price highs and the lower momentum readings, telling us that the rate of the price advance is weakening. Last, the trend following Moving Average Convergence Divergence (MACD) oscillator is pointed down.
This longer-term view of ESRX doesn't shout "buy me." The 40-week moving average line is flat, telling us that math is not on the side of the bulls. The On-Balance-Volume (OBV) line doesn't suggest a robust move to the upside, as it is not pushing to a new high foreshadowing new highs for prices. Momentum is near zero and the MACD oscillator is also near zero. All things considered, we would take profits in ESRX, if you have the shares, and sell or short ESRX on weakness below $79.
TheStreet Ratings team rates EXPRESS SCRIPTS HOLDING CO as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
We rate EXPRESS SCRIPTS HOLDING CO (ESRX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, increase in net income, good cash flow from operations, solid stock price performance and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company shows low profit margins.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- EXPRESS SCRIPTS HOLDING CO has improved earnings per share by 24.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, EXPRESS SCRIPTS HOLDING CO increased its bottom line by earning $2.66 versus $2.31 in the prior year. This year, the market expects an improvement in earnings ($5.53 versus $2.66).
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Health Care Providers & Services industry average. The net income increased by 13.6% when compared to the same quarter one year prior, going from $582.30 million to $661.70 million.
- Net operating cash flow has significantly increased by 82.25% to $793.00 million when compared to the same quarter last year. In addition, EXPRESS SCRIPTS HOLDING CO has also vastly surpassed the industry average cash flow growth rate of 12.18%.
- The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
- The debt-to-equity ratio is somewhat low, currently at 0.95, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.49 is very weak and demonstrates a lack of ability to pay short-term obligations.
- You can view the full analysis from the report here: ESRX
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.