Is It Time to Invest in This Catalyst?
Catalyst Health Solutions (NAS: CHSI) recently saw its second-quarter profits drop by 37%, mainly because its bottom line was hurt by the recent acquisition of Walgreen's (NYS: WAG) pharmacy benefits management business. So even though this is probably just a temporary blip, let's take a closer look to see whether Catalyst is a safe bet from an investor's point of view.
Numbers matter
Catalyst has been helped recently by the acquisitions of FutureScripts and Walgreen's Health Initiative (WHI). The WHI tie-in will add more than 18 million subscribers and contribute 165 million prescriptions annually, going a long way toward adding to Catalyst's revenues going forward. However, the pharmacy benefits management space has become more competitive since Express Scripts (NAS: ESRX) and Medco Health Solutions (NYS: MHS) decided to join forces.
Helped by these acquisitions, and also by higher prescription volumes and a rise in branded-drug prices, Catalyst has seen it revenues soar. In the past 12 months, revenues have risen to $4.4 billion from $3.2 billion, up 38%. At the same time, net income has risen by only 6% to $76.7 million.
How's it priced?
Let's look at how the company is valued when compared with its industry peers.
Company | Trailing P/E | Forward P/E | TEV/FCF |
|---|---|---|---|
Catalyst | 35.97 | 23.86 | 27.00 |
Express Scripts | 16.19 | 11.31 | 19.22 |
Medco | 14.54 | 11.46 | 13.32 |
Walgreen | 11.49 | 11.23 | 13.91 |
Source: Capital IQ, a division of Standard & Poor's.
As we can see, Catalyst has the highest P/E and TEV/FCF ratios and on those measures is the most expensive amongst its peers.
Even though I expect Catalyst to perform better in the long run given its recent acquisitions, its current price makes it look like an expensive bet. Maybe a price dip could be a good time to enter this stock. What say you, Fools?
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At the time thisarticle was published Fool contributor Shubh Datta doesn't own any shares of the companies mentioned above. Motley Fool newsletter services have recommended buying shares of MedcoHealth Solutions. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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