Is It Time to Invest in This Catalyst?

Catalyst Health Solutions (Nasdaq: CHSI  ) recently saw its second-quarter profits drop by 37%, mainly because its bottom line was hurt by the recent acquisition of Walgreen's (NYSE: 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 investing 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 (Nasdaq: ESRX  ) and Medco Health Solutions (NYSE: 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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