UPDATE: Medco 3Q Net Up 13%, Boosts '09 View; Upbeat On 2010
(Adds detail, share price, analysis throughout.)
By Mike Barris and Dinah Wisenberg Brin
Of DOW JONES NEWSWIRES
Medco Health Solutions Inc.'s (MHS) third-quarter earnings rose 13%, helped by
continuing strong demand for cheaper but more profitable generic drugs.
The nation's biggest stand-alone pharmacy benefits manager, which exceeded
Wall Street's expectations, also reported strong numbers in terms of client wins
and retention.
Medco shares traded up nearly 3%, or $1.67, recently to $59.25. Earlier they
reached $59.69, surpassing the previous post-spinoff high of $58.16 hit on Oct.
23. Medco shares are up 41% year to date.
Medco again raised its 2009 per-share earnings forecast, to a range of $2.80
to $2.82 from its July-boosted view of $2.76 to $2.81. Medco said it expects "
strong performance" to continue for the rest of the year and projected 2010
earnings of $3.28 to $3.38 a share. Analysts' average estimate was $3.28,
according to a survey by Thomson Reuters.
"Clients are drawn to the value driven by Medco's innovations, and they have
expressed their strong interest and confidence in Medco by awarding us over $20
billion of new business since 2008," Chairman and Chief Executive David. B. Snow
Jr. said.
The company said 2009 annualized new-named business stands at more than $10
billion, or $8 billion in a net basis. For 2010, annualized new-named sales have
reached $4.1 billion, compared with $2.8 billion last quarter, and also has
surpassed $4 billion on a net basis. The company, which expects to keep 99% of
its clients next year, said it continues to see pricing stability in the
marketplace.
Medco's results come as mounting unemployment leaves more Americans without
insurance. Medco and competitor CVS Caremark Corp. (CVS) are expected to face a
heightened challenge from Express Scripts Inc. (ESRX), whose acquisition of
WellPoint Inc.'s (WLP) drug-benefits business is seen closing by mid-December.
Snow has said Medco has the means to acquire another pharmacy benefits manager
and would consider the right opportunity. Cigna Corp. (CI) has indicated an
interest in selling its in-house pharmacy benefits business and the Wall Street
Journal reported months ago that Aetna Inc. (AET) had put its in-house PBM on
the block.
Medco's third-quarter profit rose to $335.6 million, or 69 cents a share, from
$295.7 million, or 59 cents a share, a year earlier. Excluding amortization
costs related to its 2003 spinoff from Merck & Co. (MRK), earnings rose to 75
cents from 63 cents. Net revenue jumped 18% to $14.8 billion.
Analysts polled by Thomson Reuters, on average, expected earnings, excluding
items, of 72 cents on revenue of $14.68 billion.
Total adjusted prescription volume rose 14%.
Gross margin increased by 12.5% to $1.04 billion. The gross margin percentage,
though, declined to 7% from 7.4% as new clients boosted retail volume and more
profitable mail-order volume fell 2.3%. Declines in brand-name prescriptions led
that mail-order decline. Generic drugs made up what Medco called a record 67.7%
of filled prescriptions, up 3.3 percentage points.
Revenue and profit in Accredo Health Group, Medco's specialty pharmacy
segment, both rose 19%.
"The quarter was better than expected, with operating metrics above
expectations, strong new business wins and company providing impressive (2010)
guidance" that exceeds Street view at the midpoint, Credit Suisse analyst Glen
Santangelo said.
"With strong underlying fundamentals complemented with net new business wins,
we are comfortable with the company's growth prospects for the remainder of the
year," he said, raising his profit estimates and price target for Medco.
-By Dinah Wisenberg Brin, 215-656-8285; dinah.brin@dowjones.com; and Mike
Barris, 212-416-2330; mike.barris@dowjones.com, both of Dow Jones Newswires
(END) Dow Jones Newswires
11-03-091046ET
Copyright (c) 2009 Dow Jones & Company, Inc.
|