We recently upgraded Express Scripts Holding Company (ESRX) to Outperform from Neutral following impressive second quarter of 2012 results, released on August 7. Our long term recommendation is in line with the Zacks #1 Rank (Strong Buy rating) carried by the stock in the short run.
Express Scripts beat the Zacks Consensus Estimates for both revenue as and earnings in the second quarter of 2012. Adjusted earnings of 88 cents per share beat the Zacks Consensus Estimate of 82 cents and increased 23.9% from the year-ago period. Revenues jumped 143.7% thanks to the expanded product portfolio following the acquisition of Medco Health in April 2012.
Apart from releasing second quarter results, Express Scripts raised its adjusted earnings guidance for 2012. The company now expects $3.60-$3.75 per share (previous guidance: $3.36 – $3.66 per share). We expect Express Scripts to achieve the new guidance, thanks the expanded product portfolio. Consequently, our 2012 earnings estimate of $3.70 per share (up 17 cents) is well within the company’s new guidance range.
We are also impressed by thefavorable resolution of Express Scripts’ long-standing dispute with retail giant Walgreen (WAG) in July 2012. Per the new agreement, Walgreen will start filling prescriptions from Express Scripts’ customers from September 15, 2012. Express Scripts will extend its services to over 64,000 pharmacies across the US following the inclusion of Walgreen in Express Script’s network. The favorable resolution is a major positive for Express Scripts andhas removed a major overhang on the company’s shares.
Favorable events such as the resolution of the dispute with Walgreen, strong second quarter results and the upbeat guidance lead us to believe that Express Scripts is undervalued at current levels with significant scope for appreciation.
EXPRESS SCRIPTS (ESRX): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
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