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Express Scripts Holding Company’s (ESRX - Analyst Report) third quarter 2012 adjusted earnings of $1.02 per share beat the Zacks Consensus Estimate of 99 cents and increased 29.1% from the year-ago period. Higher revenues boosted earnings in the third quarter of 2012.

On a reported basis (including special items), earnings declined 28.8% to 47 cents in the third quarter of 2012. The decline was primarily due to the expenses associated with Express Script’s purchase of Medco Health Solutions in April 2012.

Revenues jumped 133.3% in the reported quarter to $27.0 billion. The massive jump in revenues was attributable to the expanded product portfolio at Express Scripts due to the acquisition of Medco Health Solutions. Revenues however fell short of the Zacks Consensus Estimate of $27.5 billion.

Adjusted gross profit jumped 152.8% to $2.2 billion in the reported quarter, boosted by the inclusion of results of the erstwhile Medco Health Solutions. Adjusted selling, general and administrative expenses climbed 225.0% to $650.9 million.

Total adjusted claims at Express Scripts for the reported quarter came in at 398.9 million as opposed to 184.8 million in the third quarter of 2011.

2012 Earnings Outlook

Apart from releasing third quarter results, Express Scripts upped the lower end of its adjusted earnings guidance for 2012. The company now expects adjusted earnings for 2012 in the range of $3.65-$3.75 per share (previous guidance: $3.60 – $3.75 per share). The Zacks Consensus Estimate currently stands at $3.70 per share.

Impressive operating performance, increased generic utilization and the accelerated realization of savings led Express Scripts to increase its projected earnings range for 2012. The company is projecting 750 million diluted weighted average shares outstanding in 2012.

Express Scripts is on-track to complete integration of Medco Health Solutions’ operations into Express Scripts’ business and expects to at least meet its targets. The company continues to expect total adjusted claims for 2012 to be $1.4 billion.

Our Recommendation

We currently have an Outperform recommendation on Express Scripts. The stock carries a Zacks #2 Rank (Buy rating) in the short run.

Express Scripts revenues received a major boost with the acquisition of Medco Health. We are also impressed by the favorable resolution of Express Scripts’ long-standing dispute with retail giant Walgreen (WAG - Analyst Report). In July 2012, the companies inked a multi-year pharmacy network agreement. The favorable resolution has removed a major overhang on Express Scripts’ shares.

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