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Stock Strategist

Market Overreaction Makes Express Scripts Even More Attractive

Misunderstanding on private health insurance exchanges could mean opportunity for investors.

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The pure-play pharmacy benefit managers we cover have seen their stocks come under material pressure recently because of market fears regarding the growing importance of private health insurance exchanges. We believe that these fears are unfounded and that many market participants are fundamentally misreading these developments. We believe the pullback in  Express Scripts' (ESRX) share price offers a buying opportunity, given the significant discount to our $89 fair value estimate.

The delivery of pharmaceuticals to consumers encompasses many firms along the supply chain, and among those, Express Scripts stands out as an elite participant. The firm's strong competitive advantages have churned out excellent returns on invested capital and have resulted in a wide Morningstar Economic Moat Rating. We anticipate robust growth for the pharmaceutical industry over the long term, which should provide Express Scripts with a solid platform for continued success.

Vishnu Lekraj does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.