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Cramer’s Speculative Play: SXC Health Solutions

Tweet Like Mad: Pharmacy Benefit Managers

Looking for a speculative play for your portfolio? Then “Mad Money” host Jim Cramer suggests taking a look at SXC Health Solutions.

SXC is a pharmacy benefits manager that provides health care information technology. 90 percent of its sales and over 80 percent of its profits come from the benefits management division, which helps insurance companies and HMOs lower their drug costs.

While SXC Health Solutions is not a big player in the PBM business, it has an edge because it makes the software systems used by many other PBMs.

It sells its software to other pharmacy benefits managers, uses the technology to figure out which customers are doing well, and then either converts its smaller customers to their own existing PBM platform or acquires them.

“The business model feeds on itself as software clients become PBM takeover targets,” Cramer said.

Plus, the future is looking good for SXC, he added. It is buying privately held pharmacy benefits manager HealthTrans for $250 million, which should bring in $270 million in revenues. HealthTrans also comes with a dozen information technology customers, of which SXC should be able to convert or acquire three or four.

The company, like the rest of the PBM industry, will also benefit from the wave of generic drugs.

So why is it a speculative play?

Cramer said the risk is with its biggest  client, HealthSpring , which is being bought by Cigna . SXC still has four years left on its contract with HealthSpring. If Cigna cancels it, SXC will still get paid but it could cause SXC’s earnings to take a hit. On the other hand, HealthSpring could convince Cigna to use them for all its PBM services, which would be huge for SXC.

“I think it’s a buy at these levels,” Cramer said, “although if there’s bad news on the Cigna front, that's going to knock the stock big, [and] then it might be a real terrific buying opportunity.”

Call Cramer: 1-800-743-CNBC

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