Express Scripts-WellPoint Disagree - Analyst Blog

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All does not seem to be well between Express Scripts Inc. ( ESRX ) and WellPoint Inc. ( WLP ) as they voiced concerns about a contractual dispute. The dispute is regarding the terms of the Pharmacy Benefits Management ( PBM ) agreement, which the companies had inked in December 2009. WellPoint said that it differs from Express Scripts on the contractual interpretation of certain terms in the agreement and certain operational matters associated with Express Scripts' performance.

Express Scripts had acquired NextRx, WellPoint's PBM segment in December 2009. The deal, which significantly expanded Express Scripts PBM business, also included a 10-year contract agreement, under which Express Scripts was providing PBM services to WellPoint and its designated affiliates.

Management at Express Scripts stated that the contractual dispute is not expected to impact its financial position adversely. However, given the significance that the deal contained, we are not very pleased with the development. We believe that if WellPoint terminates the agreement with Express Scripts, the latter's top-line would suffer a setback, which totaled $11.6 billion in the third quarter 2011.

While WellPoint is threatening to drag Express Scripts to court regarding the matter, Express Scripts is hopeful of a mutual settlement. The news had a negative impact on Express Scripts' shares.

In addition, Express Scripts might have to revise its 2011 guidance if the aforementioned dispute resolves on a sour note. Currently the company expects adjusted earnings in the range of $2.95 - $3.05 per share, reflecting a year-over-year increase of 18% to 22%. The Zacks Consensus Estimate of $3.01 for 2011 lies within the company's guidance range.

We prefer to remain on the sidelines until further visibility on the dispute, and thus continue to have a Neutral recommendation on Express Scripts. The stock carries a Zacks #3 Rank (Hold rating) in the short-run.

EXPRESS SCRIPTS ( ESRX ): Free Stock Analysis Report

WELLPOINT INC ( WLP ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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