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Express Scripts (ESRX) Tops Q3 Earnings & Revenue Estimates

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Express Scripts Holding Company (ESRX - Free Report) posted third-quarter 2018 adjusted earnings of $2.43 per share, which beat the Zacks Consensus Estimate of $2.42. Further, adjusted earnings improved 27.9% year over year.

Revenues of $25.56 billion surpassed the Zacks Consensus Estimate of $24.99 billion and inched up 3.6% year over year. The upside was driven by operational cost improvement backed by focus on technology, digital tools, home delivery and specialty services.

The stock has a Zacks Rank #3 (Hold).

Q3 Patient Claim Volume Details

During the quarter, Express Scripts witnessed year-over-year declines in patient claims.

Adjusted network claims were 260.2 million, up 0.3% year over year. Adjusted home delivery and specialty claims were 74.4 million in the reported quarter, down 11.5% year over year.

As a result, net adjusted claims in the third quarter were 334.6 million, down 2.6% year over year. The decline was primarily caused by the loss of certain public-sector clients.

Core Business Update

During the third quarter, Express Scripts generated $1.39 billion of core business adjusted EBITDA, up 4.1% year over year.

Growth in the core business can be attributed to supply chain initiatives, strong performance by SafeguardRx suite of solutions, contributions from eviCore and Accredo.

However, lower claims volume and delays in specialty generic launches partially offset growth in the core business.

Margin Details

Adjusted gross profit in the third quarter was $2.35 billion, up 5.1% year over year. As a percentage of revenues, adjusted gross margin was 9.2% of net revenues. The figure improved 10 basis points (bps) year over year.

Adjusted selling, general and administrative (SG&A) expenses were $862.8 million, up 13.6% from the prior-year quarter’s figure. As a percentage of revenues, adjusted SG&A margin was 3.4% of net revenues. The figure was up 30 bps year over year.

Operating income in the quarter came in at $1.49 billion, up 0.7% year over year.

Impending Acquisition by Cigna

Integrating medical care and pharmacy benefits under one roof, Express Scripts announced that it is getting acquired by Cigna Corporation (CI), a global health insurance company.  In September, the U.S. Department of Justice sanctioned the proposed buyout. The acquisition is expected to be completed by Dec 31, 2018.

For investors’ notice, Express Scripts will no longer provide financial guidance because of the acquisition agreement.

Summing Up

Express Scripts ended the third quarter on a solid note, beating the Zacks Consensus Estimate for both the counts. The company has been gaining from strong performance by the core PBM unit. Further, its recently-acquired eviCore's complementary medical-benefit solutions is likely to build a comprehensive PBM solution worldwide. Developments by the company’s Inside Rx program buoys optimism.

However, Express Scripts currently faces persistent drug pricing issue. The company is also getting acquired by Cigna by December 2018. Express Scripts announced that its biggest customer and leading health insurer Anthem is not likely to extend the PBM agreement with the company anymore. Furthermore, the company has currently suspended share repurchase program because of the merger agreement with Cigna. Express Scripts has not provided any guidance for 2018.

Q3 Earnings of MedTech Majors at a Glance

A few better-ranked stocks in the broader medical space, which reported solid earnings this season are, Stryker Corporation (SYK - Free Report) , Intuitive Surgical, Inc (ISRG - Free Report) and Merit Medical Systems, Inc (MMSI - Free Report) .

All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Intuitive Surgical reported adjusted earnings of $2.83 per share in the third quarter of 2018, which beat the Zacks Consensus Estimate of $2.65. Adjusted earnings improved 1.8% year over year.

Stryker delivered third-quarter 2018 adjusted earnings per share (EPS) of $1.69, which beat the Zacks Consensus Estimate of $1.68. Earnings improved 11.2% year over year, within the company’s guidance.

Merit Medical reported third-quarter 2018 adjusted EPS of 47 cents, beating the Zacks Consensus Estimate of 42 cents. Adjusted earnings improved 46.9% from the year-ago quarter’s tally.

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