Will PBM Slowdown Hamper Express Scripts (ESRX) Q3 Earnings?
Express Scripts Holding Company ESRX is scheduled to report third-quarter 2017 results on Oct 24, after market close. The results are expected to show a decline in revenues at the pharmacy benefit manager (PBM) segment — one of the major revenue components. While this could majorly affect its earnings, let us take a look at how things are shaping up before the release.
The Zacks Consensus Estimate for PBM revenues stands at $23,226 million, reflecting a decline of 3.8% sequentially and 4.8% from the year-ago quarter. This St. Louis, MO-based company is the largest PBM in North America. Although PBM is a highly competitive industry, a report by Market Research projects that the U.S. PBM market will see a CAGR of 7.2% between 2014 and 2019.
Taking this into account, Express Scripts has been consistently trying to expand its core PBM business. The company completed the acquisition of myMatrixx, a pharmacy benefit solution provider for the workers' compensation industry recently. Furthermore, the company anticipates compounded annual EBITDA growth rate between 2% to 4% through 2020 for the core PBM business.
The Zacks Consensus Estimate for net sales stands at $25,611 billion, up 0.8% on a year-over-year basis.
Express Scripts Holding Company Price and Consensus
Express Scripts Holding Company Price and Consensus | Express Scripts Holding Company Quote
Factors at Play
Coming to the major components, the Zacks Consensus Estimate for PBM product network stands at $11,069 million, down 8.9% year over year. The Zacks Consensus Estimate for PBM service revenues stands at $365 million, down 3.2% year over year. Lackluster performance in these segments is likely to mar Express Scripts’ revenues in the third quarter.
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. Notably, the Zacks Consensus Estimate for total claims stands at $243 million, down 2.1% sequentially.
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. This excludes any contribution from Anthem and other transitioning clients.
In this regard, Express Scripts announced that its biggest customer, leading health insurer Anthem Inc. ANTM, is not likely to extend its pharmacy-benefits management agreement, which is slated for expiration by the end of 2019. Per management, Express Scripts might lose almost 50% of its revenues related to the Anthem contract in the third quarter itself.
In 2016, Anthem sued Express Scripts for overcharging for its drugs and operational failures. Meanwhile, in the second quarter of 2017, Anthem generated revenues of $52.6 million, compared with $106.6 million in the second quarter of 2016.
Here is what our quantitative model predicts:
Express Scripts has the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #2 (Buy). Notably, the Earnings ESP for Express Scripts is +0.13%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
In fact, the Zacks Consensus Estimate for earnings reflects an increase of 9.2% on a year-over-year basis.
Other Stocks to Consider
Here are a few other medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.
Abbott ABT has an Earnings ESP of +0.17% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Henry Schein, Inc. HSIC has an Earnings ESP of +0.33% and a Zacks Rank #3.
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