BARRON’S ROUNDUP: Bearish on Pharma Managers; Facebook Surprise
(Bloomberg) -- Shares of pharmacy-benefit managers Express Scripts Holding (ESRX), CVS Health (CVS) and UnitedHealth Group (UNH) are at risk as employers team up to try to cut high drug prices, a cornerstone of profits for the PBMs, Barron’s said in its July 25 cover story.
- Companies including American Express, Caterpillar, Coca- Cola, IBM, Shell and Verizon are among a coalition of 30 of the biggest U.S. employers that are focused on making prescriptions more affordable.
- Known as the Health Transformation Alliance, the group will rewrite PBM contracts to eliminate the undisclosed drug markups that have been so profitable for the benefit managers and helped to push up their stock prices four times faster than the market over the past decade.
- Health insurer Anthem sued Express Scripts in March, claiming it was overcharged by $3 billion a year. Express Scripts disputes the claims, though it could lose as much as 20% of its earnings if Anthem takes its business elsewhere.
- CVS gets 39% of its operating income from benefit management and a specialty pharmacy, so it’s especially vulnerable. UnitedHealth gets 16% of its operating earnings from its PBM unit.
- The cost of drugs has risen faster than any other health- care expense, soaring 102% over the decade ending in 2015.
Other highlights from this week’s Barron’s (subscription required):
- Facebook (FB), Smith & Wesson (SWHC), Activision Blizzard (ATVI), AMN Healthcare Services (AHS), Arista Networks (ANET) and Splunk (SPLK) are six companies that could surprise investors as Wall Street analysts underestimate their earnings, according to Estimize, a crowdsourcing platform for earnings and revenue estimates, Barron’s reported.
- Mortgage insurers MGIC Investment (MTG), Radian Group (RDN) and Essent Group (ESNT) could benefit from gains of as much as 50% in coming years, Barron’s said. The companies’ more stringent lending standards and rising home prices have curbed default rates, according to Barclays analyst Mark DeVries.
- John Wilson, managing director and senior equity portfolio manager at Columbia Threadneedle, says he sees continued upside for Facebook (FB) as Wall Street overlooks the company’s potential to monetize its messaging platforms, Messenger and WhatsApp. Wilson also is bullish on medical- device maker Medtronic (MDT), media conglomerate Comcast (CMCSA) and discount retailer TJX (TJX), Barron’s said.
- Chinese investors are dominating the ranks of international home buyers in the U.S. with purchases of about $27 billion from April 2015 through March 2016, according to a National Association of Realtors survey. Chinese buyers spent an average of $936,615 per house, and almost two-thirds of the purchases were in the suburbs, the survey showed. Canadians, second on the list, bought a total of $9 billion, Barron’s reported.
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HALISTERSource: BFW (Bloomberg First Word)
Tickers FB US (Facebook Inc)
CVS US (CVS Health Corp)
ESRX US (Express Scripts Holding Co)
UNH US (UnitedHealth Group Inc)
AHS US (AMN Healthcare Services Inc)
People Mark Devries (Barclays PLC)
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