Today’s Stock of the Week will benefit from rising drug prices, but it’s not a drugmaker. To find out what it does, keep reading.

Managing Drugs

Express Scripts Holding Company (ESRX) is a major pharmacy benefits manager in the US, Canada and Europe. It negotiates drug prices with about 3,000 manufacturers and retailers on behalf of more than 85 million members of health-care plans and managed-care groups.

Health-care costs and, in particular, drug prices will continue to rise as the population ages and the cost of developing new drugs increases. That means the cost-control role of Express Scripts should become even more important. This has caused pushback from drugmakers that has held down Express Scripts’s share price.

The health insurer Anthem, Express Scripts’s biggest client, is responsible for about 20% of Express Scripts’s earnings. The two companies are now in a contract dispute. But Express Scripts has a 95% client-renewal rate and cash flow that has allowed $14 billion in stock buybacks in the past three years. Revenue of $101.8 billion in 2015 will likely be flat this year, then rise to $104.4 billion in 2017. Earnings should keep growing steadily.

Earnings per share: 2017 est./$6.87… 2016 est./$6.37… 2015/$5.53.

This Week’s Expert

parakh-sidSid Parakh is co-portfolio manager of the $355 million Becker Value Equity Fund (BVEFX), Portland, Oregon. BeckerCap.com