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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