Express Scripts Holding Company (ESRX) hit its 52-week high of $62.80 on August 9, 2012, shortly after reporting strong second quarter 2012 results, which included year-over-year profit growth of 23.9% and an enhanced guidance for this year.
This Zacks #1 Rank (Strong Buy) pharmacy benefit manager gained momentum in early August in anticipation of strong second quarter results and has been on an uptrend since. A solid second quarter 2012 performance, improving prospects, an upbeat outlook, and a year-to-date return of 31.4% make Express Scripts a solid momentum pick.
Impressive Second Quarter Results
On August 7, Express Scripts reported impressive second quarter 2012 results. Revenues jumped 143.7% year-over-year to $27.69 billion, thanks to the expanded product portfolio following the April 2012 acquisition of Medco Health Solutions. Earnings came in at 88 cents per share, surpassing the Zacks Consensus Estimate of 82 cents by 7.3% and the year-ago earnings of 71 cents by 23.9%. Generic fill rate increased to 77.8% from 74%.
Guidance Raised
Express Scripts raised its earnings guidance for 2012 to between $3.60 and $3.75 per share, compared to the previous guidance range of $3.36 to $3.66.
An impressive operating performance, higher generic utilization and the accelerated realization of synergies led Express Scripts to increase its projected earnings range for 2012. It expects to generate savings of $1 billion on the complete integration of Medco Health’s operations into Express Scripts’ business.
New Contract with Walgreen
The signing of a new contract with retail giant Walgreen (WAG) in July is a major positive for Express Scripts, which will extend its services to over 64,000 pharmacies across the US following this inclusion in its network. Per the new agreement, Walgreen will start filling prescriptions from Express Scripts’ customers from September 15, 2012.
Earnings Momentum on the Rise
Over the last 30 days, the Zacks Consensus Estimate for 2012 increased 4.8% to $3.70 per share, aided by upward revisions of all eighteen estimates. This implies year-over-year growth of 24.6%. Moreover, the Zacks Consensus Estimate for 2013 increased 3.7% to $4.47, with sixteen of nineteen estimates heading north.
Attractive Valuation
Express Scripts is currently trading at a forward price-to-earnings (P/E) of 16.7x, a 6.2% discount to the peer group average of 17.8x. One-year earnings growth is expected to be 24.6%, well above the peer group average of 16.2%. On a price-to-book (P/B) basis, Express Scripts trades at 2.24x, an 8.2% discount to the peer group average of 2.44x. Moreover, the company’s return on equity (ROE) is 25.1%, well above the peer group average of 13.5%.
Chart
Shares of Express Scripts have been rising consistently since the end of June. The chart below shows that the stock is currently trading above its 50 and 200-day moving averages of $54.80 and $48.56, respectively.. The stock has also been trading above the S&P 500 since April 2012. Volume is strong, averaging roughly 5.1 million daily.
With a market cap of $50.07 billion, St. Louis, Missouri-based Express Scripts is the largest full-service pharmacy benefit management company in North America. The company provides a full range of services on behalf of its clients, which include health maintenance organizations (HMOs), health insurers, third-party administrators, employers, union-sponsored benefit plans, workers’ compensation plans and government health programs. The company primarily competes with CVS Caremark Corporation (CVS), among others.
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