Express Scripts (ESRX) Q4 Earnings Top, Long-Term View Solid

Express Scripts Holding Company (NASDAQ:ESRX) posted fourth-quarter 2017 adjusted earnings of $2.16 per share, which beat the Zacks Consensus Estimate of $2.08. Further, adjusted earnings improved from $1.88 per share in the year-ago quarter.

Revenues of $25.38 billion also beat the Zacks Consensus Estimate of $25.12 billion and increased from $25.12 billion in the year-ago quarter..

Q4 Patient-Claim Volume Details

Express Scripts’ fourth-quarter 2017 results benefited from a rise in patient claims and strong customer retention.

Adjusted network claims were 270.3 million, up 1.54% year over year.

Adjusted home delivery and specialty claims were 85.5 million in the fourth quarter, down 3.6% year over year.

As a result, net adjusted claims in the fourth quarter were 355.8 million, flat on a year-over-year basis.

Notably, adjusted EBITDA (earnings before interest, tax, depreciation and amortization) per adjusted patient claim in the fourth quarter was $6.04, higher than $5.79 reported in the year-ago quarter.

Express Scripts Holding Company Price and Consensus

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

Margin Details

Adjusted gross profit in the fourth quarter was $2.55 billion, up 6.5% year over year. As a percentage of revenues, adjusted gross margin expanded 42 basis points (bps) to 10% of net revenues.

Adjusted selling, general and administrative expenses were $483.2 million, up 16.3% from the prior-year quarter.

The upside in margins was driven by operational cost improvement backed by focus on technology, digital tools, home delivery and specialty services.

Balance Sheet

Net cash flow provided by operating activities was down 39% year over year.

The company exited the quarter with cash and cash equivalents of $2.31 billion, down from $3.07 billion in the year-ago quarter.

Total debt, at the end of the quarter, was $1.03 billion, up from $722.3 million at the end of 2016. In fact, the company is striving to reduce debt level.

Guidance

Adjusted claims for the first quarter of 2018 are expected in the range of 335-345 million.

Adjusted earnings per share for the first quarter of 2018 are estimated in the range of $1.73-$1.78. This represents growth of 30-34% on a year-over-year basis.

For the full year, adjusted earnings are estimated in the band of $9.27 to $9.47, reflecting growth of 31-33% year over year. Revenues are expected in the band of $99,000 million to $102,000 million. Adjusted EBITDA is expected between $7,600 million and $7,800 million.

Coming to guidance for Express Scripts’ core business, total adjusted claims are expected in the range of 280-290 million for the first quarter of 2018. For 2018, total adjusted claims from core business are expected between 1,125 and 1,165. Net revenues are estimated in the range of $80,500-$83,000 million.

Long-term View

Buoyed by strong results in the quarter, Express Scripts’ enterprise value initiative is estimated to cost $600-$650 million. Notably, management expects cumulative savings of nearly $1.2 billion by 2021.

Further, the company’s targeted compounded annual adjusted EBITDA growth rate for the core business from 2017-2020 of between 2% and 4% is a positive.

Zacks Rank & Other Key Picks

Express Scripts has a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader medical sector are PerkinElmer (NYSE:PKI) , Bio-Rad Laboratories (NYSE:BIO) and Becton, Dickinson and Company (NYSE:BDX) .

Bio-Rad Laboratories sports a Zacks Rank of #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.The company has a long-term expected earnings growth rate of 25%.

PerkinElmer has a long-term expected earnings growth rate of 12.3%. The stock carries a Zacks Rank #2.

Becton, Dickinson and Company is a Zacks #2 Ranked player. The company has a long-term expected earnings growth rate of 13.3%.

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