Market Overview

Express Scripts Earnings Preview: More Strong Revenue Expected on Acquisition

Express Scripts (NASDAQ: ESRX), which resumed its relationship with Walgreen (NYSE: WAG) in September, is scheduled to report its third-quarter 2012 results Monday, November fifth, after the closing bell. Among other things, investors will be looking to see how the company's acquisition of Medco Health Solutions is working out.

Expectations

Analysts on average predict that Express Scripts will report that revenue for the quarter jumped more than 137 percent year-over-year to $27.49 billion. Per-share earnings are expected to come to $0.99 or up about 20 percent from same quarter of last year. That consensus EPS estimate has remained steady over the past 60 days. But Express Scripts has exceeded analysts' EPS expectations in just two of the past six quarters, including a 7.3 percent upside surprise in the second quarter.

Acquisition costs hurt per-share earnings in the second quarter, though the merger more than doubled revenues. But adjusted prescriptions were up 118 percent year over year, and Express Scripts raised its full-year EPS guidance, citing better-than-expected integration savings. Shares jumped nearly 12 percent to an all-time high in the two days following the second-quarter report.

Looking ahead to the current quarter, the analysts' consensus forecast calls for EPS to rise about 22 percent year-on-year on sales that are almost 131 percent higher. Full-year EPS are expected to be up more than 19 percent on a rise of more than 106 percent in revenues, compared with the previous year.

The Company

Express Scripts Holding Company is by far the country's largest pharmacy benefits manager. Its clients include health maintenance organizations, health insurers, third-party administrators, employers, union-sponsored benefit plans, workers compensation plans and government health programs. It is a Fortune 100 company that is headquartered in St. Louis, Missouri, and its market capitalization is more than $50 billion. The company was founded in 1986, and George Paz has been chief executive since April 2005 and chairman since May 2006.

Competitors include Amerigroup (NYSE: AGP) and Catamaran (NASDAQ: CTRX). The former fell short of EPS estimates in the second quarter, and it is being acquired by WellPoint (NYSE: WLP). Catamaran's third-quarter earnings declined due to acquisition-related costs, but like Express Scripts, it raised its earnings forecast for the full year.

During the three months that ended in September, Express Scripts announced the new agreement with Walgreen, launched a new online tool to help patients better understand how their medication works, and announced that its newly rebranded Federal Pharmacy Services division would serve other federal agencies as well as the Department of Defense.

Performance

The long-term EPS growth forecast is more than 26 percent, but the return on equity is less than 12 percent. And the price-to-earnings (P/E) ratio is much higher than the industry average. Short interest is about one percent of the float, though. Of the 25 analysts surveyed by Thomson/First Call who follow the stock, 21 recommend buying shares. The analysts' mean price target signals more than 11 percent potential upside. That target price would be another all-time high.

Shares have traded mostly between $62 and $65 since late August, and ended last week down more than five percent from the recent high but up about 32 percent year to date. The share price now is below the 200-day moving average. But over the past six months, the stock has outperformed WellPoint and Catamaran, as well as the broader markets.

Posted-In: AmeriGroup Catamaran express scriptsEarnings Long Ideas Short Ideas Previews Trading Ideas Best of Benzinga

 

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