Pharmacy benefit manager (PBM) Express Scripts Holding Company ESRX is scheduled to report first-quarter 2016 results on Apr 26.
Express Scripts has an impressive track record. The company comfortably beat earnings expectations in three of the four trailing quarters, and reported in-line results in the other. In the last reported quarter, Express Scripts recorded a positive earnings surprise of 0.65%. Over the past four quarters, the company has posted an average positive earnings surprise of 0.87%.
Let’s see how things are shaping up for this quarter.
Factors at Play
Express Scripts expects earnings per share in the range of $1.18–$1.22 in the first quarter. The company estimates adjusted claims in the range of 315 million to 325 million for the first quarter.
Both the Coventry and Catamaran business have rolled off, representing approximately 3% of claims. Nevertheless, we expect Express Scripts to continue benefitting from increased generic utilization, shift toward mail orders, strong specialty growth and an aging population. Branded drugs are becoming increasingly expensive due to double-digit brand inflation, continued rise in the price of specialty drugs and overwhelming regulatory burden pushing demand for generics. Hence, clients need innovative solutions to counter this trend.
Meanwhile, investor focus will remain on the status of Express Scripts' contract with Anthem, Inc. ANTM) (running through 2019). Anthem has filed a lawsuit against Express Scripts in order to recover damages for pharmacy pricing which was higher than the competitive benchmark pricing. Anthem is also seeking to recover damages related to operational issues and a declaration of its right to terminate the contract with Express Scripts. The companies had signed the agreement in 2009, which allowed a periodic pricing review from time to time through its tenure (expires in 2019). Anthem alleged that it has been trying to negotiate the terms of the contract with Express Scripts, but had failed to do so seeing that the latter was not keen enough. As per Anthem, it is receiving competitive benchmark pricing and is entitled to more favorable terms. Nevertheless, the company stated that it will not end its contract with Express Scripts at this juncture.
Earnings Whispers
Our proven model does not conclusively show that Express Scripts is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates. This is not the case here, as you will see below.