Prescription for profits

Pharmacy benefits management, or PBM, company Express Scripts (Nasdaq: ESRX) has seen its shares tumble in recent months due to two major negative pieces of news.

First, it’s expected to lose its relationship with its largest customer, health insurer Anthem, in 2019, knocking out a big chunk of its earnings power. Second, Amazon.com may start delivering prescription medications.

On the plus side, the Anthem dispute may be a distant memory a decade from now. And as the population of older Americans increases, demand for prescription drugs should rise.

Express Scripts’ size enables it to hold down costs better than most PBMs, which should help it grow over the long run. In the meantime, the company is benefiting from an increase in the use of generic drugs and mail orders, and it may be able to further boost its business through cost savings.

Express Scripts’ current risks naturally have investors jittery about the stock. Yet that’s exactly why its stock may be a great value at its recent depressed price near $62 per share. With its forward-looking price-to-earnings, or P/E, ratio near 9, much of the pessimism surrounding Express Scripts has already been priced into its stock, and it may very well turn out to be a bargain for today’s investors. (The Motley Fool owns shares of Express Scripts.)