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Express Scripts (ESRX) Down 2.6% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Express Scripts Holding Company (ESRX - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Express Scripts Earnings Top in Q2, FY17 View Up

St. Louis, MO-based pharmacy benefit manager Express Scripts posted second-quarter 2017 adjusted earnings per share of $1.73, beating the Zacks Consensus Estimate of $1.71. Furthermore, adjusted earnings jumped from $1.57 per share in the year-ago quarter.

Revenues of $25.35 billion missed the Zacks Consensus Estimate of $25.40 billion but were up roughly 0.5% on a year-over-year basis.

Q2 Highlights

Adjusted gross profit in the second quarter was flat year over year at $2.16 billion. Adjusted selling, general and administrative expenses were $782.6 million, down 13.5% from the prior-year quarter. Total adjusted claims amounted to 350.0 million in the second quarter, flat year over year.

The company’s EBITDA (earnings before interest, tax, depreciation and amortization) witnessed a 1% rise to $1,824.1 million in the second quarter. The upside was driven by operational cost improvement backed by focus on technology, digital tools, home delivery and specialty services.

Balance Sheet

The company exited the quarter with cash and cash equivalents of $2.35 billion compared with $3.08 billion at the end of 2016. Total debt, at the end of the quarter was $13.84 billion versus $14.85 billion at the end of 2016. In fact, the company is striving to reduce its debt levels.

Guidance Raised

The company raised its guidance for 2017 adjusted earnings. For fiscal 2017, adjusted earnings per share are projected in the band of $6.95 to $7.05, up from the previously provided range of $6.90 to $7.04. This represents 10% increase at the mid-point of the range.

Coming to the guidance for the third quarter of 2017, Express Scripts expects total adjusted claims in the range of $340 million to $350 million. Adjusted earnings per diluted share for the third quarter are estimated in the range of $1.88 to $1.92, representing growth of 8% to 10% on a year-over-year basis. 

Furthermore, the company anticipates compounded annual EBITDA growth rate between 2% to 4% from 2017 through 2020 for the core PBM business. This excludes any contribution from Anthem and other transitioning clients.

Express Scripts Likely to Lose Anthem

Express Scripts recently announced that its biggest customer, the leading health insurer Anthem Inc., is not likely to extend its pharmacy-benefits management agreement, which is slated for expiration by the end of 2019. In 2016, Anthem sued Express Scripts for overcharging its drugs and operational failures. Per management, Anthem refused to participate in further discussions on pricing concessions and probable adjustments for the agreement. Meanwhile, in the second quarter of 2017, Anthem generated $52.6 million in revenues compared with $106.6 million in the second quarter of 2016.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been six revisions higher for the current quarter compared to two lower.

Express Scripts Holding Company Price and Consensus

VGM Scores

At this time, Express Scripts' stock has an average Growth Score of C, however its Momentum is doing a bit better with a B. The stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for momentum and to a lesser degree growth.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.




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