Why Is Express Scripts Holding Company (ESRX) Down 10.5% Since Its Last Earnings Report?

It has been about a month since the last earnings report for Express Scripts Holding Company (NASDAQ:ESRX) . Shares have lost about 10.5% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is ESRX due for a breakout? 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 catalysts.

Recent Earnings

Express Scripts Holding Company 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.

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to six lower. While looking back an additional 30 days, we can see even more upward momentum.

Express Scripts Holding Company Price and Consensus

VGM Scores

At this time, ESRX has a great Growth Score of A, though it is lagging a bit on the momentum front with a B. Charting a somewhat similar path, 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.

Based on our scores, the stock is equally suitable for value and growth investors while momentum investors may want to look elsewhere.

Outlook

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