Express Scripts Earnings: An Early Look

Earnings season is in full swing, with huge numbers of companies having already given their latest numbers to investors, and Express Scripts (ESRX) is about to release its quarterly earnings report. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

Pharmacy benefit management has become a huge part of the health-care business, and Express Scripts has become a giant in the industry. Let's take an early look at what's been happening with Express Scripts over the past quarter and what we're likely to see in its quarterly report next Monday.

Stats on Express Scripts

Source: Yahoo! Finance.

Will Express Scripts prescribe better earnings to investors?
Analysts have been rock-solid in their expectations of Express Scripts over the past few months, holding their estimates unchanged. But the stock has done quite well, rising almost 9% since mid-November.

Express Scripts has enjoyed huge success from its buyout of Medco Health Solutions, which boosted its position against rival CVS Caremark (CVS 1.15%) to become the biggest pharmacy benefit manager in the country. Not only has revenue soared, but the deal has been accretive to earnings as well in remarkably short order.

Yet not everything has gone Express Scripts' way. UnitedHealth (UNH 2.96%) was a big Medco customer, but it decided to bring its PBM unit in-house in order to cut hundreds of millions of dollars in costs. Not only does that hurt Express Scripts directly, but if other insurers follow UnitedHealth's example, then Express Scripts could lose even more business down the road. That may be one reason why CEO George Paz reined in expectations after the company's previous quarterly report.

Still, the favorable outcome that Express Scripts reached with Walgreen (WBA -0.23%) after a protracted dispute shows just how powerful the pharmacy benefit manager is in the industry. In the end, it was Walgreen that suffered from the fight, as customers fled to CVS and Rite Aid (RAD 5.26%), boosting their results substantially. Even after the resolution, Rite Aid and CVS have managed to hang onto some former Walgreen customers.

In Express Scripts' report Monday and the conference call Tuesday morning, look for guidance about whether company management has any better expectations for the coming year. If the pessimism continues, it'll be important to figure out whether the issues are short-term or long-term in nature in order to evaluate their impact on the stock.

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