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Will Express Scripts (ESRX) Q1 Earnings Hold a Surprise?

Pharmacy benefit manager, Express Scripts Holding Company ESRX, is scheduled to report first-quarter 2016 results on Apr 24, after market close. Last quarter, the company’s earnings exceeded the Zacks Consensus Estimate by 0.53%. However Express Scripts Holding does not have an impressive track of beating estimates in the four trailing quarters and delivered an average miss of 0.07% in the trailing four quarters. Let’s see how things are shaping up prior to this release.

Factors at Play

For the first quarter, Express Scripts expects earnings per share in the range of $1.30–$1.34, while adjusted claims are anticipated to be 345–355 million. Demand for the company’s services continues to be solid which should drive its sales. Management expects stronger EBITDA growth and operational cost improvements with focus on technology, digital tools, home delivery and specialty.

We expect Express Scripts to continue benefiting from increased generic utilization, shift toward mail orders, strong specialty growth and an aging population. Branded drugs are becoming increasingly expensive due to double-digit brand inflation, continued rise in the price of specialty drugs and an overwhelming regulatory burden that is pushing demand for generics.

However, overall activities of Express Scripts during the first quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter to be reported fell 3 cents to $1.32 per share in the last 90 days.

We note that Express Scripts underperformed the Zacks Medical Services sub-industry in the last one year. While the stock shrunk 9.69%, the sub-industry lost only 2.32%.

Earnings Whispers

Our proven model does not conclusively show that Express Scripts is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. This is not the case here, as you will see below.

Zacks ESP: The Earnings ESP for Express Scripts is 0.00%, as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.32. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Express Scripts currently carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks that Warrant a Look

Here are three companies you may want to consider as our proven model shows that they have the right combination of elements to post an earnings beat this quarter:  

Applied Materials, Inc. AMAT has an Earnings ESP of +1.32% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Chemours Company CC has an Earnings ESP of +4.08% and a Zacks Rank #1.

Hill-Rom Holdings, Inc. HRC has an Earnings ESP of +1.27% and a Zacks Rank #2.


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