Express Scripts Holding Company (ESRX): This Company’s Widening Moat Swallows Competitors

Investment case

At first glance, Express Scripts’ 36 earnings multiple is too expensive even for a wide-moat company that controls a greater percentage of pharmaceutical spending each year. However, due to GAAP accounting rules, Express Scripts’ net income figure understates the company’s true earnings. Instead, free cash flow — which routinely comes in much higher than net income — is a better gauge of the company’s true earning power.

Over the last four quarters, the company has generated about $6 per share in free cash flow. The stock currently trades for just over 10 times that figure. Investors who buy the stock today are getting a wide-moat company with brightening prospects for a 10% initial earnings yield. Investors will not find a deal like this anywhere else in the market today.

Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends Express Scripts. The Motley Fool owns shares of Express Scripts.

The article This Company’s Widening Moat Swallows Competitors originally appeared on Fool.com and is written by Ted Cooper.

Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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