Express Scripts

Hi All

Express Scripts (Ticker: ESRX) is a Pharmaceutical benefits manager. The business has been generating $4bn in FCF consistently for years. The business needs minimal capital expenditure and is using all of this Free Cash Flow to repurchase its shares (at a time when the business has a market cap of $35bn). The business financials perform consistently well (they barely move year on year!).

The business moat is high switching costs (customer retention is 98% YoY. Customers are tied in for up to ten years), and large scale. Morningstar rate this as a wide-moat business and one of their best ideas at present.

The business is to lose a major customer (Anthem) in 2019. However even when I forecast FCF to be $2BN going forward with 0% growth I am getting over 5% return at today's prices.

This stock is flagged as being very cheap on both the acquirers multiple screener and magic formula screener.

What are the thoughts of everybody else?


  • Could see it merge or get purchased by an insurance company or pharmacy chain. Wide moat. Can survive amazon entry or partner. BUT, providers and patients hate them it usually rates as one of the worst places to work. Also government scrutiny of pbm is problem and could hurt profits.
  • After looking for 5 minutes at the numbers:
    1) It does not look cheap enough for me. No book value growth since 2017 - what do they do with all their FCF? -They have been buying back stock massively! Which I consider rather negative, if the stock was expensive.
    2) I do not consider a company with net margins between 2-4% "high moat". Okey - one could counter, that also Amazon has razor thin-margins. And Amazon surely has a wide moat.
    But Amazon has managed to increade their revenue dramatically. Express Scripts on the other other has lower revenue than 4 years ago.
    Sorry: A company with low margins and stagnating revenue does not have a high moat!



  • No dividend. Debt to Equity is at 94. No for me.
  • edited December 2017
    I do not know Express Scripts but the only "proof" that a company had in the past till now a moat is not in the margin or in the revenue only if it had above average ROTC for a long period...(with exception it was "only" about a genius management )...

    The ability to grow has nothing to do with having a moat...of course if you have a moat (sustainable high ROTC) and can grow that's way better...

    ....5% return seems low to me for equity...
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