Express Scripts Inc.’s (ESRX) third quarter earnings of 65 cents per share (excluding special items) were in line with the Zacks Consensus Estimate but well above the year-ago adjusted earnings of 42 cents. On a reported basis (including special items), the company earned 57 cents per share as against 35 cents earned a year ago.
Earnings in the quarter were driven by the 100.5% jump in revenues to $11.3 billion during the quarter. In spite of the jump, revenues fell short of the Zacks Consensus Estimate of $11.43 billion.
Selling, general and administrative expenses (excluding special items) climbed 7% to $213.6 million in the reported quarter. Gross profit (excluding special items) for the quarter improved 32.2% to $807.7 million.
Total claims at Express Scripts, one of the largest pharmacy business managers in North America, for the reported quarter came in at 162.5 million as against 106.4 million in the third quarter of 2009. Claims comprise home delivery claims, specialty and other claims. The latter includes drugs distributed through patient assistance schemes and limited distribution contracts with pharmaceutical manufacturers in addition to Emerging Market claims. Total adjusted claims (thrice the home delivery claims since such claims are typically 90-day claims) climbed 48% to 186.9 million during the reported quarter.
The company, which bought back 16.4 million shares for $747.5 million during the third quarter of 2010,stated that it has completed implementing 90% of NextRx membership into its IT systems. The balance is expected to be integrated by the end of this year. The company is on track to meet its integration targets (expected to be completed by the first quarter of 2011). As a reminder, Express Scripts acquired WellPoint Inc.‘s (WLP) NextRx pharmacy benefit management business (PBM) for $4.68 billion last year.
We view Express Scripts’ acquisition of WellPoint’s PBM business, NextRx, as a smart strategic move. The aligned business model should provide significant opportunities for driving growth. The deal includes a 10-year agreement under which Express Scripts will provide PBM services including home delivery and specialty pharmacy services, to members of the affiliated health plans of WellPoint. The dispensing of services to NextRx members should allow Express Scripts to increase generic and mail order penetration, which should help drive earnings.
2010 Guidance Tightened
Express Scripts narrowed its adjusted earnings guidance slightly and increased the upper end of its previously issued earnings guidance by 3 cents. The company is looking at earnings in the range of $2.48 to $2.50 per share. Earlier, the company was expecting earnings of $2.45 to $2.50. The Zacks Consensus Estimate for 2010 is $2.49.
2011 Guidance
The company also provided a projection for 2011 while disclosing the earnings results. Adjusted earnings are expected between $3.15 and $3.25 per share, above current expectations. The Zacks Consensus Estimate for 2011 currently stands at $3.16. Total adjusted claims are forecasted between 750 million and 780 million and cash flow from operations are expected between $2.2 billion and $2.4 billion.
Our Recommendation
Currently we have a Neutral stance on the stock which is supported by the Zacks #3 Rank (short-term Hold rating) carried by the company.
EXPRESS SCRIPTS (ESRX): Free Stock Analysis Report
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