Medical Stocks

Express Scripts Holding Co Valuation – April 2018 $ESRX

Company Profile (excerpt from Reuters): Express Scripts Holding Company, incorporated on July 15, 2011, is a pharmacy benefit management (PBM) company. The Company is engaged in providing healthcare management and administration services to its clients, including managed care organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans, workers’ compensation plans and government health programs. The Company operates through two segments: PBM and Other Business Operations. The PBM segment includes its integrated PBM operations and specialty pharmacy operations. Its Other Business Operations segment includes its subsidiary, United BioSource Corporation (UBC), and its specialty distribution operations.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of ESRX – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $39,206,101,300 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.67 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 251.12% Pass
6. Moderate PEmg Ratio PEmg < 20 10.34 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.19 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.67 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -2.54 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $6.74
MG Growth Estimate 15.00%
MG Value $259.59
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $97.77
MG Value based on 0% Growth $57.31
Market Implied Growth Rate 0.92%
Current Price $69.72
% of Intrinsic Value 26.86%

Express Scripts Holding Company does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.31 in 2014 to an estimated $6.74 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.92% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Express Scripts Holding Company revealed the company was trading below its Graham Number of $79.82. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 10.34, which was below the industry average of 44.81, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-42.54.

Express Scripts Holding Company receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$42.54
Graham Number $79.82
PEmg 10.34
Current Ratio 0.67
PB Ratio 2.19
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $11,957,100,000
Total Current Liabilities $17,846,400,000
Long-Term Debt $14,981,500,000
Total Assets $54,255,800,000
Intangible Assets $40,725,600,000
Total Liabilities $36,136,200,000
Shares Outstanding (Diluted Average) 568,400,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.85
Dec2017 $7.74
Dec2016 $5.39
Dec2015 $3.56
Dec2014 $2.64
Dec2013 $2.25
Dec2012 $1.76
Dec2011 $2.53
Dec2010 $2.17
Dec2009 $1.56
Dec2008 $1.54
Dec2007 $1.08
Dec2006 $0.84
Dec2005 $0.67
Dec2004 $0.45
Dec2003 $0.40
Dec2002 $0.32
Dec2001 $0.20
Dec2000 -$0.02
Dec1999 $0.25
Dec1998 $0.08

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.74
Dec2017 $5.23
Dec2016 $3.69
Dec2015 $2.74
Dec2014 $2.31
Dec2013 $2.12
Dec2012 $2.01
Dec2011 $2.01
Dec2010 $1.65
Dec2009 $1.30
Dec2008 $1.09
Dec2007 $0.80
Dec2006 $0.62
Dec2005 $0.48
Dec2004 $0.34
Dec2003 $0.27
Dec2002 $0.19

Recommended Reading:

Other ModernGraham posts about the company

Express Scripts Inc. Analysis – 2015 Update $ESRX
19 Companies in the Spotlight This Week – 7/26/14
Express Scripts Holding Company Annual Valuation – 2014 $ESRX

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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