Maxim Group recently raised the price target of Express Scripts (ESRX) from $64 to $76. We evaluated the company and some of its competitors and we believe that Express Scripts should be rated a sell. Medco Health Solutions (MHS) should also be rated a sell. We would buy WellCare Health Plans (WCG). Here is why.
Express Scripts Inc.
Sales the past five years increased at an annual pace of 16.4 percent as earnings increased 24.7 percent. Earnings this year increased 14.1 percent and are forecasted to increase 23.8 percent next year. Earnings are expected to grow at a 17.7 percent pace the next five years.
Express Scripts is a low margin business; gross, operating and profit margins are 7, 5 and 2.8 percent respectively. Return-on-equity is 42 percent.
Debt is roughly 3 times larger than equity and the company has about 40 percent more current assets than current liabilities.
The current P/E is 22.3 and the forward P/E is 12.6.
Shares are trading above the rising 50-day moving average suggesting that prices are in the markup stage and will undergo distribution next. In addition, shares are above a long-term trendline going back to the end of 2011.
Medco Health Solutions
The sales growth the past five years is 10.5 percent annually as earnings increased 28.2 percent. Earnings this year increased 14.5 percent and are forecasted to increase 6.1 percent next year. Earnings the next five years should increase 13.7 percent annually.
Medco is also a low margins business. The profit margin is 2 percent. Return-on-equity is 36.4 percent. Institutions own 79 percent of shares.
The enterprise has a debt to equity ratio of 1.26, or debt is 26 percent higher than equity. The firm isn't highly liquid as current assets are 76 percent of current liabilities.
On to the valuation ratios, P/E is 20.3 and forward P/E is 15.6.
Shares are trading above the rising 50-day simple moving average and above the rising 45 degree long-term trendline.
WellCare Health Plans, Inc.
The annual sales growth the past five years is 10.9 percent as earnings grew 15.4 percent. Earnings this year grew 583.8 percent and next year are forecasted to slow to 10.8 percent. Earnings the next five years are reported at 18.2 percent.
Another low margin business with profit margin reported as 4.3 percent and return on equity 27.1 percent. Institutions own 95 percent of shares.
The debt level is 13 percent of equity and P/E is 11.3. Forward P/E is 13.4.
Common shares are trading at the rising 50-day simple moving average and above the long-term 45 degree trendline.
Amerigroup Corporation (ACG)
Sales and earnings grew at 17 and 13 percent respectively the past five years. Earnings this year decreased at 29.2 percent and are forecasted to rebound 25.31 percent next year. Earnings the next five years are forecasted to grow at 7.8 percent.
Gross margin is 16.3 percent and profit margin is 3.1 percent. Return-on-equity is 16 percent.
Debt is 51 percent of equity and shares are trading at 16.8 times current earnings and 12.8 times forward earnings.
Common shares are trading below the flattening 50-day moving average and could break out to the downside of a head & shoulders formation. The issue is above its long-term 45 degree trendline.
You can't do finance without economics and thus we have included a section on economics to show that the economic data has gotten better in recent months and could be due for a decline.
Consumer Confidence is rising is above the 3 and 6-month simple moving averages.
ISM Non-manufacturing PMI is below the rising 3-month simple moving average. The decline below the 3-month simple moving average could be a warning of a slow down to come in the pace of growth in non-manufacturing.
Two Sells & One Buy
The debt levels are too high at Express Scripts and Medco and the valuations are above where we would buy the firms thus we would sell these stocks and buy WellPoint on a significant decline in valuation. As for Amerigroup we are neutral and leaning towards sell as earnings may not rebound as much as expected next year.