NEW YORK (AP) — Shares of Express Scripts Inc. slipped Tuesday after the pharmacy benefits manager reported disappointing first-quarter results.
THE SPARK: The St. Louis company posted a smaller-than-expected profit. Its revenue declined from last year and fell about $430 million short of Wall Street expectations.
THE BIG PICTURE: Pharmacy benefits managers often report weaker profit margins in the first quarter as contracts with new clients kick in. The contracts are least profitable in their early phases and the costs are highest. Express Scripts said it received a relatively smaller benefit from launches of new generic drugs, which are highly profitable for PBMs.
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THE ANALYSIS: Jefferies & Co. analyst Arthur Henderson said a number of factors came together at once and hurt Express Scripts' result.
"While management did a good job running the business and reining in expenses, pricing, mix, and volumes appear to have all converged to put pressure on margins and overall profitability," he wrote. He said the company's outlook will improve starting in the fourth quarter, when a generic version of the best-selling cholesterol drug Lipitor will reach the market.
Henderson kept a "Buy" rating on Express Scripts stock with a price target of $69 per share.
Citi Investment Research analyst George Hill noted that the company plans to sell debt and use the proceeds to buy back stock. Stock repurchases normally boost a company's earnings per share because they reduce the number of shares on the market, but Hill noted that Express Scripts reiterated its previous profit guidance of $3.15 to $3.25 per share. Analysts expect $3.22 per share, on average. Hill rates the shares at "Hold" with a price target of $59.
SHARE ACTION: Express Scripts stock fell $1.72, or 3.2 percent, to $53.65 in morning trading.
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