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Can PBM Unit Boost Express Scripts' (ESRX) Q1 Earnings?

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Express Scripts Holding Company  is scheduled to report first-quarter 2018 results on May 2, after market close. Solid performance by the Pharmacy Benefit Management segment (“PBM”) is likely to drive the company’s top line. However, the company is getting acquired by Cigna Corporation by the end of 2018.

In the last reported quarter, Express Scripts delivered adjusted earnings of $2.16 per share, which beat the Zacks Consensus Estimate of $2.08. Further, adjusted earnings improved from $1.88 in the year-ago quarter. Revenues of $25.38 billion also beat the Zacks Consensus Estimate of $25.12 billion.

For the first quarter, the Zacks Consensus Estimate for revenues is pegged at $24.76 billion, reflecting a rise of 0.4% year over year. The Zacks Consensus Estimate for earnings is pegged at $1.76, indicating an increase of 32.3% year over year.

Let’s dig deeper to analyze how things are shaping up before the earnings announcements.

PBM in Focus

Express Scripts is the largest PBM in North America. The company has been consistently trying to expand its core PBM business. Meanwhile, the Zacks Consensus Estimate for PBM revenues is pegged at $22.60 billion.

We believe that 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.

The company inked an agreement to acquire privately-held eviCore healthcare at $3.6 billion in October 2017. The transaction was closed in the fourth quarter of 2017. eviCore provides evidence-based and integrated medical benefit management services (MBM) solutions that drive cost reduction and quality care outcomes. The acquisition is expected to prove accretive to Express Scripts’ adjusted diluted earnings per share within the first full year of operation, the first quarter being no exception.

Express Scripts Holding Company Price and EPS Surprise

 

Express Scripts' PBM services coupled with eviCore's complementary medical benefits management is likely to build a solution.

Strong demand for the company’s solutions continued into the quarter under review. The company expects solid demand for SafeGuardRx, 90-day supply for chronic medications, exclusive Accredo Specialty Pharmacy and advanced opioid solutions. Through each of these programs as well as many others, Express Scripts delivers superior care to patients at an affordable cost.

The company’s latest offering of Multiple Sclerosis Care Value Program has been launched on Jan 1. This program extends the company’s differentiated payment model by shielding payers from costs associated with discontinued therapy. Express Scripts already enrolled over 22 million lives as of yet. Management claims this as the most successful launch till date.

Other Factors to Consider

Guidance: Adjusted claims for the first quarter of 2018 are expected in the range of 335-345 million. Adjusted earnings per share for the first quarter of 2018 are estimated in the range of $1.73-$1.78. This represents growth of 30-34% on a year-over-year basis.

For the full year, adjusted earnings are estimated in the band of $9.27-$9.47, reflecting growth of 31-33% year over year. Revenues are expected in the band of $99,000-$102,000 million. Adjusted EBITDA is expected between $7,600 million and $7,800 million.

Coming to guidance for Express Scripts’ core business, total adjusted claims are expected in the range of 280-290 million for the first quarter of 2018.

Client-Retention Rate Positive: Express Scripts entered 2018 with strong market momentum and continued to witness success in retaining key clients. By the end of the previous quarter, the company created trusted client relationships by delivering exceptional care to patients while controlling costs. Its favorable drug-trend results are clearly indicative of the above fact. Buoyed by strong prospects, Express Scripts expects to provide retention rate guidance for 2019 of 96-98%.

Express Scripts Getting Acquired: After declaring that Express Scripts is losing its biggest customer — the leading health insurer Anthem Inc., the company recently announced that it is getting acquired by Cigna, a global health insurance company.

The acquisition is expected to be completed by Dec 31, 2018. Per the definitive agreement, Cigna will take over Express Scripts in a cash and stock transaction worth $67 billion. Notably, this includes Cigna's assumption of approximately $15 billion debt of Express Scripts.

In fact, Moody's Investors Service, the rating services arm of Moody’s Corporation, is worried about Express Scripts’ high customer concentration and pricing pressure. Per Moody’s, Express Scripts is likely to experience declining script volume and higher-than-typical customer losses in the days to come. Other challenges include fewer generic drug introductions, softening mail order growth trends, client focus on cost savings and transparency.

Earnings Whispers

Our proven model does not show an earnings beat for Express Scripts in the 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 -0.19%. 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 #3.

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

The Cooper Companies, Inc. (COO - Free Report) has an Earnings ESP of +0.26% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teleflex Incorporated (TFX - Free Report) has an Earnings ESP of +0.58% and a Zacks Rank #3.

AbbVie Inc. (ABBV - Free Report) has an Earnings ESP of +0.06% and a Zacks Rank #3.

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