NEW YORK (AP)--an analyst to Oppenheimer & Co. has raised his target price on the two largest pharmacy benefits management company Wednesday, and said Wall Street is underestimating revenues Medco Health Solutions Inc. and Express Scripts Inc. obtains new generic medicines.
Analyst Charles Rhyee said shares of Medco, Express Scripts, and SXC Health Solutions Corp. were strong in the first weeks of 2011. Investors are expecting additional revenue that the companies will bring for the coming years as generic versions of billion-selling drugs like Lipitor, Zyprexa Plavix and reach the market. This activity will peak between the end of 2011 and 2014.
Wall Street was looking forward to the launch of these generics for years, but Rhyee said that investors are not fully appreciating its scope.
Pharmacy benefits managers make their money by reducing costs for healthcare sponsors and members. Generic drugs are an important part of their business model because they are less expensive than their brand-name counterparts.
Rhyee rates of all three stocks "Outperform." He said that Express Scripts is his top pick for now, as the company should take more earnings as integrates NextRx, business PBM is acquired by WellPoint Inc., in early 2009. But he said Medco shares will become more attractive as 2012 approaches because stands to earn more from the introduction of Lipitor generic.
New generic drugs should increase profit of Medco by at least 60 cents to 65 cents per share in 2012, said Rhyee, and generic Lipitor will provide about half of that amount. He raised his price target on shares of Medco $ 84 to $ 70 and its stock price target Express Scripts for $ 70 to $ 62. Rhyee has a goal of $ 55 per share SXC.
The analyst said that has some concerns about the performance of the company after 2014, when should slow the pace of new generic medicines. He wrote that the industry profit margins can slip as companies become more transparent in their prices. He added that the health reform and new product launches generic biotech cannot assist the largest PBMs. However, are likely to benefit by putting more effort into specialty drugs or medications that require special handling.
Medco shares slipped 85 cents to $ 64.45 afternoon trading, Express scripts and shares fell 13 cents to $ 58.45. Shares of SXC gave 6 cents to $ 44.10.
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