Express Scripts Inc.’s (ESRX) fourth quarter earnings of 71 cents per share (excluding special items) beat the Zacks Consensus Estimate by a penny and were well above the year-ago adjusted earnings of 49 cents per share. The fiscal year 2010 earnings of $2.50 were in line with the Zacks Consensus Estimate but beat the year-ago earnings by 39.6%.
Earnings in the quarter were driven by the 37.8% jump in revenues to $11.29 billion. However, revenues fell short of the Zacks Consensus Estimate of $11.51 billion. Annual revenues of $44.97 billion also missed the Zacks Consensus Estimate of $45.23 billion. 2010 revenues reflected a year-over-year increase of 81.9%.
Quarterly Details
Adjusted gross profit for the quarter improved 18.3% to $833.7 million, and adjusted selling, general and administrative expenses slid 15.0% to $199.9 million.
Total claims at Express Scripts for the reported quarter came in at 166.7 million as against 132.4 million in the fourth quarter of 2009. Claims comprise network claims, 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 23.7% to 191.3 million during the quarter.
Other Details
The company, which bought back 26.9 million shares for $1.28 billion during the fiscal year, stated that it has completed implementing NextRx membership into its IT systems. As a reminder, Express Scripts acquired WellPoint Inc.‘s (WLP) NextRx pharmacy benefit management business (PBM) for $4.68 billion in 2009.
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.
2011 Guidance Reiterated
Along with the fourth quarter and fiscal year 2010 results, Express Scripts also reaffirmed its earnings projection for 2011. Adjusted earnings are expected between $3.15 and $3.25 per share. The Zacks Consensus Estimate of $3.22 lies within the company’s guidance range.
Our Recommendation
Currently we have a Neutral stance on Express Scripts, which is supported by a Zacks #3 Rank (short-term Hold rating).
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