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Can PBM Unit Drive Express Scripts' (ESRX) Earnings in Q4?

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Express Scripts Holding Company is scheduled to release fourth-quarter 2017 earnings on Feb 27, after market close. Notably, the company delivered an average earnings surprise of 0.6% in the trailing four quarters.

Moreover, in the past year, Express Scripts has outperformed the industry The stock has gained 5.4%, compared with the industry’s rally of 1.3%.

Let us take a look at how things are shaping up before the release.

PBM in Focus

Express Scripts is the largest pharmacy benefit manager (PBM) in North America. The company has been consistently trying to expand its core PBM business.

However, one of the major revenue segments within its PBM unit — the PBM Product Network — is expected to reflect a decline in the quarter. Notably, the Zacks Consensus Estimate for PBM Product Network revenues stands at $12,082 million, reflecting a sequential decline of 0.8%. While this is expected to mar fourth-quarter results, an expected improvement in other segments should help the company generate solid results this season.

Interestingly, the Zacks Consensus Estimate for PBM Home Delivery revenues is pegged at $11,541 million, showing a rise of 5.4% sequentially. We believe the company’s unique offerings of home-delivery pharmacy care, specialty pharmacy care, specialty benefit management, and medical and drug data analysis services buoy optimism. Express Scripts also distributes a full range of biopharmaceutical products and provides extensive cost-management and patient-care services.

Additionally, the Zacks Consensus Estimate for PBM Service sales is pinned at $368 million, showing an increase of 7.6% sequentially.

Other Factors at Play

View Upbeat: Prior to the fourth-quarter earnings release, management raised the previously-issued adjusted earnings per share guidance for 2017 from $6.97-$7.05 to $7-$7.08. This indicates a 10% year-over-year growth at the midpoint.

Per management, the raised projected range can be attributed to the combination of accretive acquisitions and strategic tax planning initiatives.

Notably, the company has issued guidance for 2018, where it expects the acquisition of eviCore healthcare to prove accretive to earnings.

Favorable Estimate Revision Trend: The Zacks Consensus Estimate for current-quarter revenues is pegged at $25.12 billion, showing year-over-year growth of 1%.

Additionally, the Zacks Consensus Estimate for current-quarter earnings per share stands at $2.09. This reflects 11.2% growth year over year.

Benefits from Generic Utilization: Express Scripts stands to benefit from increased generic utilization, shift toward mail orders, strong specialty growth and an aging population. The company is focusing on specialty drugs as well as generics of late.

Notable Developments: Express Scripts recently closed the acquisition of eviCore healthcare for $3.6 billion, with a view to drive growth, earnings and cash flow. Through the buyout, the company intends to provide improved healthcare and control unnecessary spending on pharmacy and medical.

Recently, Accredo, a specialty pharmacy of Express Scripts, earned an accreditation from URAC, a Washington DC-based independent accreditor of health care management organizations.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Express Scripts in the fourth quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Express Scripts has an Earnings ESP of -0.55%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Express Scripts carries a Zacks Rank #2.

Stocks to Consider

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Universal Health Services (UHS - Free Report) has an Earnings ESP of +1.96% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Exelixis (EXEL - Free Report) has an Earnings ESP of +8.94% and a Zacks Rank #2.

Amphastar Pharmaceuticals (AMPH - Free Report) has an Earnings ESP of +264.71% and a Zacks Rank #2.

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