Express Scripts Downgraded On Fear It Could Lose Anthem Contract

Express Scripts Holding Company (NASDAQ: ESRX) shares fell following news that Sen. Ron Wyden proposed legislation requiring drug middlemen from disclosing secret discounts they receive from manufacturers. The company did express to Benzinga it's working with Sen. Wyden, acknowledging the risks the new legislation may present.

Following the news, alongside the threat that the company will lose its contract with healthcare provider Anthem Inc (NYSE: ANTM), analysts at Wells Fargo downgraded the stock to Underperform from Market Perform.

“We are downgrading shares of ESRX, reflecting our view that the shares do not fully reflect the 20-40% earnings risk related to repricing of or losing the ANTM contract, Express’ largest customer,” Wells Fargo said.

The new proposed legislation and loss of the Anthem contract isn't the only risk Express Scripts is exposed to, as competition is heating up with CVS Health Corp(NYSE: CVS).

“We see risk of market share losses stemming from Express’ PBM model given our view that its stand-alone model does not position ESRX well to compete effectively against CVS Caremark’s broader dispending venue model and UNH OptumRx’s integrated medical model,” Wells Fargo said.

Wells Fargo has lowered its valuation range on the company to $52-56, down from $79-85, although left its EPS estimates unchanged. Given the considerable risks to Express Scripts’ business model amid a constantly changing healthcare industry, the company could see more downgrades in the near term.

See Also:

Express Scripts Confirms It's Working With Sen. Wyden's Bill

Stocks To Watch As CBO Expected To Release Score For GOP Healthcare Bill