Express Scripts Surges

The pharmacy benefit manager sees its shares jump in late trading.
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Express Scripts

(ESRX)

knows how to soothe the market.

The giant pharmacy benefit manager delivered record quarterly results on Wednesday. The company posted second-quarter revenue of $3.9 billion that, while shy of the consensus estimate, came in 4% higher than a year ago. Meanwhile, operating income jumped 30% to reach 60 cents a share and beat Wall Street expectations by three pennies.

Express Scripts pointed to "record levels" of home delivery and generic utilization, along with an expanded specialty pharmacy business, when explaining that success.

"This quarter," the company said, "we were successful on a number of strategic initiatives that translated into lower costs for our clients and patients and improved profitability for Express Scripts, demonstrating our alignment of interests."

Looking ahead, Express Scripts expects that momentum to continue. The company offered new full-year guidance of $2.37 to $2.42 a share that, if achieved, would easily top Wall Street's current $2.33 estimate.

Following the news, shares of Express Scripts rocketed 6% in after-hours trading.

Strong Results

Leerink Swann analyst Ann Hynes was banking on solid results from the company.

Hynes predicted that the pharmacy benefit manager would at least match Wall Street expectations, with the potential for significant upside from its CuraScript specialty pharmacy business. She noted that CuraScript has so far penetrated only one-quarter of Express Scripts' book of business and, therefore, will continue to enjoy further expansion opportunities in the future.

Express Scripts has made some clear progress on that front already. In the latest quarter, the company increased its revenue from the home delivery of specialty drugs by a whopping 64% as CureScript began to serve more of the PBM's customers.

Going forward, new plans by Express Scripts to purchase

Priority Healthcare

(PHCC)

should further bolster the company's ability to capitalize on the booming specialty pharmacy business.

In the meantime, Hynes seems less worried than some about Express Scripts' potential loss of a big existing account. She simply assumes that Express Scripts will fail to renew its $1 billion contract in New York and has, therefore, already excluded the deal from her future growth projections. The company is fighting allegations by New York Attorney General Eliot Spitzer that it engaged in fraud in carrying out a big contract in the state.

In fact, she seems to look on the bright side when discussing that potential loss.

"We note that plan has adopted few cost-control programs and is not very profitable," wrote Hynes, who has an outperform rating on Express Scripts' stock. "The contract has low mail utilization rate and no specialty pharmacy business. (So) we estimate that the company's profit per claim would increase."

Still, the Spitzer investigation nevertheless seems to be weighing on the company. Notably, the company pointed to higher legal expenses, coupled with additional compliance costs and incentives for its management, as the primary drivers behind a 33% surge in selling, general and administrative expenses during the latest quarter.