Catalyst Health Solutions, Inc. (CHSI) reported fourth-quarter 2009 earnings of 41 cents per share, in line with the Zacks Consensus Estimate. The company earned 33 cents in the year-ago quarter.
Quarterly Results
Revenue for the fourth quarter of 2009 came in at $748 million as against $687.4 million in the year-ago period, up 8.8%. The rise in revenue was attributable to higher prescription volume and price inflation on brand drugs, offset by the impact of the increase in generic utilization. Total unadjusted claims processed in the quarter increased 7.3% year-over-year to 14.6 million.
The addition of new clients coupled with the growth of existing clients resulted in the increase in prescription volume. Generic utilization came in at 68% as against 65.5% in the comparable quarter of 2008.
Gross profit for the quarter came in at $50.5 million or 6.8% of revenue as opposed to $40.3 million, or 5.9% of revenue, in the comparable quarter of 2008. The increase in gross profit was attributable to higher revenue, greater generic utilization, continued realization of the economics of the company’s mail service pharmacy, contribution of performance management fees, higher formulary compliance apart from improved contract performance relating to drug manufacturer rebates and pharmacy reimbursements.
Total operating expenses for the quarter climbed 7.8% to $718.7 million from $666.5 million in the year-ago quarter. Selling, general and administrative expenses grew approximately 10.3% to $21.4 million from $19.4 million in the year-ago period. The increase in SG&A expenses was primarily attributable to the company’s growth initiatives. Furthermore, the increase in SG&A expenses for the reported quarter reflects the consolidation of operating expenses from Catalyst Health’s recent acquisition.
Yearly Results
For full year 2009, the company earned $1.48 per share in line with the Zacks Consensus Estimate. Catalyst Health earned $1.16 in fiscal 2008. For 2009, the company reported revenue of $2.9 billion, compared to revenue of $2.54 billion in 2008. The annual gross profit came in at $185.8 million as against $143.3 million in 2008.
Operating income for 2009 climbed approximately 38.9% to $104.7 million from $75.4 million in 2008. The increase in operating income was primarily attributable to the increase in gross profit offset by the rise in selling, general and administrative expenses (SG&A). SG&A expenses in the year rose to $81 million as against $67.8 million in 2008.
2010 Outlook
Catalyst Health re-affirmed the guidance provided by it previously for fiscal year 2010. The company expects 2010 revenue in the range of $3.3 billion to $3.6 billion. Catalyst Health forecasts 2010 earnings between $1.80 and $1.88 per share. The Zacks Consensus Estimate for 2010 hints at earnings of $1.83.
Our Recommendation
Catalyst Health currently has a Zacks Rank #3 (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. This is supported by our Neutral recommendation on Catalyst Health. The Neutral recommendation implies that the stock is expected to perform in line with the overall U.S. equity market over the next six to twelve months. Therefore, we advise investors to retain the stock over this time period.
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