Express Scripts (ESRX) Up 4.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Express Scripts (ESRX). Shares have added about 4.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Express Scripts due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Express Scripts Q3 Earnings Beat, Patient Claim Volume Falls

Express Scripts 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.

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Express Scripts has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Express Scripts has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.