Express shares up; Walgreen, outlook worries fade

Stock Market Predictions

(Global Markets) - Shares of Express Scripts Holding Co (ESRX.O) rose nearly 4 percent on Friday as investors shrugged off concerns about the U.S. pharmacy benefit manager's financial outlook and ability to maintain its business without Walgreen Co (WAG.N) in its drugstore network.

Express Scripts held its first earnings conference call for Wall Street since it closed its $29 billion acquisition of rival Medco Health Solutions that makes it the clear leader in the management of prescription benefits for Americans.

The first-quarter results, posted late on Thursday, showed solid revenue for both Express Scripts and Medco, Maxim Group analyst Anthony Vendetti said.

"We can see now a clear path to how dominant the combined company can be," Vendetti said. "Also, I think there was a little bit of relief that there wasn't a more of a negative impact from the ongoing dispute with Walgreen."

The results marked the first quarter since Walgreen, the largest U.S. drugstore chain, stopped filling prescriptions for Express Scripts patients at the end of 2011 after the companies were unable to agree on a new contract.

Analysts viewed Express Scripts' quarterly volume of prescription claims processed - which rose 3.6 percent to 192.8 million - as evidence its business was showing resilience to losing Walgreen.

"We don't believe the lack of WAG in the network is having any meaningful impact on ESRX's results," Cowen & Co analyst Charles Rhyee said in a research note.

Walgreen shares were off 1.3 percent at $33.62 at midday on Friday.

On the conference call, Express Scripts Chief Executive Officer George Paz said that "eliminating Walgreens from our network was better-received, quite frankly, than even we expected and the clients had virtually no disruption."

Clients, Paz said, are "looking to spend money where it matters and not to spend money where it doesn't matter." Express Scripts' clients include employers and health plans.

Paz also said very few of Medco's clients had a change-of-control provision in their contracts that would allow them to leave Express Scripts due to the merger.

Vendetti said Paz's comments "placated fears that maybe they could lose a lot of the Medco business."

Express Shares had fallen slightly in after-hours trading on Thursday night, as the company's full-year profit forecast initially appeared disappointing.

The company forecast 2012 earnings in a range of $3.36 to $3.66 per share, excluding items, while analysts, on average, had been looking for $3.63, according to Thomson Global Markets I/B/E/S.

But after digesting the outlook, analysts noted that items not crucial to the company's performance - such as a high share count and tax rate - brought down the profit range.

"Adjusting for the higher-than-expected share count and tax rate, our previous estimate would have fallen right at the midpoint of management's guidance," Oppenheimer & Co analyst Bret Jones said in a research note.

Express Scripts shares were up 3.6 percent at $56.27 in midday trading on the Nasdaq.

(Reporting By Lewis Krauskopf in New York; editing by Matthew Lewis)