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Express Scripts (ESRX) to Buy eviCore, Fortify PBM Business

Zacks

Express Scripts Holding Company ESRX recently inked an agreement to acquire privately-held eviCore healthcare from investors including General Atlantic, TA Associates and Ridgemont Equity Partners for $3.6 billion. The transaction is expected to close in the fourth quarter of 2017.

eviCore provides evidence-based and integrated medical benefit management services (MBM) solutions that drive cost reduction and quality care outcomes. Notably, eviCore will operate as a standalone business unit under Express Scripts.

Express Scripts' pharmacy benefit management coupled with eviCore's complementary medical benefits management is likely to build a comprehensive patient benefit management (PBM) solution. This buyout will provide Express Scriptsopportunities to cross-sell to both client bases.

Financial Impact


The acquisition is expected to prove accretive to Express Scripts’ adjusted diluted earnings per share within the first full year of operation, excluding transaction-related expenses and amortization of intangibles.According to the company, this deal is likely to take care of the $1 trillion that is spent on healthcare annually.

Industry Prospects

Although PBM is a highly competitive industry, a report by Market Research projects the U.S. pharmacy benefit management market to see a CAGR of 7.2% between 2014 and 2019. According to a Markets and Markets report, the global healthcare provider network management market will value $2.96 billion by 2020, at a CAGR of 10.7% during the 2015 to 2020 period. Taking this into account, Express Scripts has been consistently trying to expand its core PBM business.

The company recently announced plans of expanding its customized workers' compensation pharmacy solutions through the acquisition of myMatrixx, a pharmacy benefit solutions provider for the workers' compensation industry. Furthermore, the company anticipates compounded annual EBITDA growth rate between 2% and 4% from 2017 through 2020 for the core PBM business. However, Express Scripts announced that its biggest customer, the leading health insurer Anthem Inc. (ANTM), is not likely to extend its pharmacy-benefits management agreement, which is slated for expiration by the end of 2019.

Price Performance

Express Scripts’ stock has underperformed the broader industry in the last one year. Specifically, the stock has lost 15.9% during this period as against the industry's gain of 1.9%.

Zacks Rank & Key Picks

Express Scripts currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the medical sector are Abbott ABT, IDEXX Laboratories, Inc. IDXX and Thermo Fisher Scientific Inc. TMO. Abbott, IDEXX Laboratories and Thermo Fisher carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Abbott has a long-term expected earnings growth rate of 10.7%. The stock has rallied roughly 35.2% over the last year.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.8%. The stock has gained 40.8% last year.

Thermo Fisher has a long-term expected earnings growth rate of 11.7%. The stock has gained 25.3% last year.

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