Short Ideas

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Express Scripts looks like a near term short candidate (ESRX). It started to break thru the 65 key support today (currently is trading around 64.86). The stock has completed a bearish head + shoulders formation with a perfectly horizontal neckline which is the key support level to watch. Chart-wise it's a classic setup for a potential short, and the neckline has been strongly established at 65 from the 2 lows in 2014, 4 lows in 2016, and 2 lows in 2017. Today 65 was broken, at least tentatively.

It needs to close below 65 and then could either move down from there, or alternately re-test 65 (which is now resistance). If the re-test of 65 fails, that is the signal to short (for conservative shorters).

I always considered ESRX to be a high quality core holding, but it sounds like they have some potentially serious issues (see article below). If it has in fact broken key support (65), then next support should be 60, and then it could trade in the 50s. 50 looks like it would represent a fairly solid floor.

It might conceivably have another mini bounce or two prior to definitively breaking the key 65 support, so will be interesting to watch. The contract they are in danger of losing (Anthem) is ESRX's largest customer -





>>> Express Scripts Downgraded On Fear It Could Lose Anthem Contract


Brett Hershman

Benzinga

March 15, 2017



http://finance.yahoo.com/news/express-scripts-downgraded-fear-could-203535832.html



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.

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