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Express Scripts (ESRX) Up 13.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Express Scripts (ESRX - Free Report) . Shares have added about 13.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Express Scripts due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Express Scripts posted second-quarter 2018 adjusted earnings of $2.22 per share, which beat the Zacks Consensus Estimate of $2.20. Further, adjusted earnings improved 28.3% year over year.

Revenues of $25.64 billion surpassed the Zacks Consensus Estimate of $5.36 billion and inched up 1.2% year over year. The upside was driven by operational cost improvement backed by focus on technology, digital tools, home delivery and specialty services.

Q2 Patient Claim Volume Details

Express Scripts’ second-quarter 2018 witnessed year-over-year declines in patient claims.

Adjusted network claims were 261.8 million, down 0.9% year over year.

Adjusted home delivery and specialty claims were 76.1 million in the reported quarter, down 11.4% year over year.

As a result, net adjusted claims in the second quarter were 337.9 million, down 3.5% on a year-over-year basis. The decline was primarily caused by the loss of certain public-sector clients.

Core Business Update

During the second quarter, Express Scripts generated $1.3 billion of core business adjusted EBITDA, up 10% year over year.

Margin Details

Adjusted gross profit in the second quarter was $2.29 billion, up 3.2% year over year. As a percentage of revenues, adjusted gross margin was 8.9% of net revenues. This reflected an increase of 20 basis points (bps) year over year.

Adjusted selling, general and administrative (SG&A) expenses were $499.4 million, up 5.4% from the prior-year quarter’s figure. As a percentage of revenues, adjusted SG&A margin was 1.9% of net revenues. This remained flat year over year.

Adjusted EBITDA in the second quarter of 2018 was up 3% year over year due to supply chain initiatives, continued strong performance from the Company's SafeGuardRx suite of solutions, growth in Accredo specialty pharmacy and the inclusion of eviCore.

Guidance

Express Scripts reiterated guidance for 2018.

Adjusted earnings are estimated in the band of $9-$9.14. Notably, the Zacks Consensus Estimate for earnings is currently pegged at $9.07, which lies significantly above the guidance. Revenues are expected in the band of $99-$102 billion. The Zack Consensus Estimate for revenues is currently pegged at $100.62 billion, which lies within the guidance. Adjusted EBITDA is expected between $7.6 billion and $7.8 billion.

However, Express Scripts raised core business 2018 adjusted EBITDA guidance from $5.25-5.40 billion to $5.27-5.43 billion. This represents growth of 8% year over year at the midpoint of the range.

Management also announced that the company expects to make approximately $140 million of investments toward enterprise value initiatives for 2018, which are expected to contribute $65-$75 million of savings in 2018.  This is expected to deliver cumulative savings of nearly $1.2 billion by 2021.

For the third quarter of 2018, adjusted earnings per share are estimated in the range of $2.40-$2.45, reflecting growth of 26-29% from third-quarter 2017 level. Notably, the Zacks Consensus Estimate for earnings is currently pegged at $2.43, which is within the projected range. The company expects total adjusted claims for the third quarter in the range of 330-340 million, of which 275-285 million are attributable to the core business.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Express Scripts has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 more suitable for value investors than those looking for growth and momentum.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Express Scripts has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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