What's in Store for Express Scripts' (ESRX) Q3 Earnings?

Express Scripts Holding Company ESRX is expected to report third-quarter 2018 results on Oct 23, after market close. Subdued Pharmacy Benefit Management segment (PBM) performance is likely to hurt the company’s results this earnings season. Meanwhile, the guidance is impressive.

 

Express Scripts has an average positive earnings surprise of almost 1.2% for the trailing four quarters.

 

Q2 Results

 

In the last reported quarter, Express Scripts posted adjusted earnings of $2.22 per share, which beat the Zacks Consensus Estimate of $2.20. Adjusted earnings improved 28.3% year over year.

 

Revenues of $25.64 billion also surpassed the Zacks Consensus Estimate of $5.36 billion. Revenues showed an improvement of 1.2% year over year.

 

Which Way Are Estimates Treading?

 

For the quarter to be reported, the Zacks Consensus Estimate for revenues is pegged at $25 billion, reflecting a 1.3% rise. The same for earnings is pegged at $2.42, indicating an increase of 27.4%.

 

Let’s delve into the factors that are likely to have an impact on third-quarter 2018 results.

Express Scripts Holding Company Price and Consensus

 

Express Scripts Holding Company Price and Consensus | Express Scripts Holding Company Quote

PBM in Focus

 

Express Scripts is the largest PBM in North America. The company has been consistently trying to expand the core PBM business. The Zacks Consensus Estimate for PBM revenues is pegged at $23 billion, reflecting a year-over-year decline of 1.9%.

 

In fact, in the last reported quarter, the company witnessed year-over-year declines in patient claims.

 

However, it is encouraging to note that Express Scripts has seen a slew of developments in the PBM wing earlier this year. For instance, the PBM giant is currently taking action to improve affordability and access of patients to affordable generic drugs.

 

Last month, the company’s subsidiary, Inside Rx announced the addition of 14 new medications to its brand medications list per the Inside Rx prescription savings card. The program now offers discounts to over 130 brand-name drugs to patients who are uninsured or underinsured and pay the retail price for their medications.

 

We believe that such positive developments are likely to offset the predicted fall in PBM revenues.

 

Other Factors at Play

 

Guidance Impressive

 

For the quarter to be reported, adjusted earnings per share are estimated in the range of $2.40-$2.45, reflecting growth of 26-29% from a year ago. The company expects total adjusted claims for the third quarter in the band of 330-340 million, of which 275-285 million is attributable to the core business.

 

It is encouraging to note that in the last reported quarter, management announced that the company expects to make approximately $140 million of investments toward enterprise value initiatives for 2018. Notably, this is expected to contribute $65-$75 million of savings in 2018.  This is likely to result in cumulative savings of nearly $1.2 billion by 2021.

 

Express Scripts Getting Acquired

 

Express Scripts recently announced that it is getting acquired by Cigna Corporation, a global health insurance company. In fact, in August, stockholders of the company approved the proposed acquisition of Express Scripts by Cigna. Per the definitive agreement, Cigna will take over Express Scripts in a cash and stock transaction worth $67 billion.

 

Per Moody's Investors Service, Express Scripts is likely to see higher-than-typical customer losses in the days to come.

 

What Does Our Model Say?

 

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise in the quarter. This is not the case here as you will see below.

 

Earnings ESP: Express Scripts has an Earnings ESP of -0.68%. 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.

 

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revision.

 

Stocks Worth a Look

 

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

 

Bio-Rad Laboratories BIO has an Earnings ESP of +9.60% and a Zacks Rank #3.

 

Baxter International Inc BAX has an Earnings ESP of +0.90% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Masimo Corporation MASI has an Earnings ESP of +0.98% and a Zacks Rank #2.

 

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