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Stock Analyst Update

Improving Results for Express Scripts

The Cigna merger is on track, and we are maintaining our $92 fair value estimate and wide moat rating after a solid quarter for Express Scripts.

 Express Scripts  reported another solid quarter, and we are maintaining our $92 fair value estimate and wide moat rating. Our valuation represents Cigna’s offer price, which also matches our discounted cash flow-driven valuation for the pharmacy benefit manager. There were no major updates related to the Cigna merger, as this deal recently received Department of Justice approval with no pushback. We expect the transaction to close within the next few months. From an operational standpoint, we believe the new entity will be a formidable force in healthcare and will be able to wield significant pricing power and leverage top-tier scale advantages. Based on the need of payers to control their health benefit plan costs, the efficient management of pharmaceutical expenses will be just as critical as managing medical expenses, such as doctor’s visits and surgeries. As the largest PBM, Express has the scale and expertise to manage drug benefit plans more efficiently than most health plan sponsors. Thus, we believe Cigna will acquire a strong wide-moat asset at a fair price. This dynamic should add significantly to the managed-care organization's competitive advantages over the coming years without any major dilution to its valuation.

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