Catalyst Health Beats Estimate - Analyst Blog
November 02 2011 - 8:15AM
Zacks
Catalyst Health Solutions Inc. (CHSI) reported
third-quarter operating earnings of 63 cents per share, beating the
Zacks Consensus Estimate of 61 cents. The results also compare
favorably with earnings of 51 cents in the prior-year quarter.
Operating earnings in the reported quarter exclude the impact of
non-recurring items such as transaction costs and integration
expenses related to the Walgreens Health Initiatives Inc. (WHI)
acquisition and amortization related to acquisitions.
The year-over-year increase was attributable to strong
prescription volume growth, which supported the
top-line and improved operational performance. Besides, the
acquisitions of WHI and FutureScripts were significant and provided
meaningful earnings growth. However, the acquisitions led to
additional
expenses as well thereby, partially setting off earnings
growth.
Net income reported by Catalyst Health was $15.2 million or 31
cents per share, substantially down from $21.5 million or 48 cents
in the prior-year quarter.
Revenues for the reported quarter climbed 55% year over year to
$1.43 billion from prior year earnings of $925.1 million. The rise
is attributable to higher prescription volume, which was partly
offset by the impact of the increase in generic utilization.
Total unadjusted claims processed excluding administrative
services only (ASO) claims rose to $24.4 million in the reported
quarter from $17.0 million in the year-ago quarter.
Additionally, total prescription volume excluding ASO claims
rose to 30.4 million from 20.5 million in the prior-year quarter.
The growth of new clients along with the acquisition impact of WHI
and FutureScripts resulted in the increase in prescription volume
in the reported quarter.
Generic utilization climbed to 74.2% from 71.5% in the
comparable quarter of 2010, while gross profit rose to $84.1
million from $61.7 million in the year-ago quarter. Gross profit of
the reported quarter includes the effect of amortization of
intangible assets of FutureScripts to the tune of $2.4 million.
The increase in gross profit was attributable to increased
revenues due to WHI and FutureScripts acquisitions, higher generic
utilization and margin contribution from new clients, which were
partly offset by compressed margins in renewal business.
Total operating expenses for the reported quarter upped to $1.4
billion from $890 million in the year-ago quarter. Selling,
general and administrative (SG&A) expenses surged 116.5% to
$57.8 million from $26.7 million in the prior-year quarter.
The increase in SG&A expenses and acquisitions-related
transition and integration costs and amortizations led to a fall in
operating income to $26.3 million from $35.0 million in the third
quarter of 2010.
Business Update
During the reported quarter, Catalyst Health secured new
pharmacy benefit management (PBM) business consisting of
self-funded employers, such as The Hertz Corporation and
MGM Resorts International (MGM), and managed care
plans, such as Health Alliance Medical Plans. The new business is
expected to generate over $400 million in annualized revenue in
2012.
Outlook
Catalyst Health reaffirmed its 2011 revenue guidance range of
$5.1–5.3 billion and adjusted earnings guidance
range of $2.30–2.40 per share.
Additionally, the company issued a preliminary 2012 revenue
guidance range of $5.8–6.2 billion. EPS is expected to grow 13–17%
in 2012 to $2.60–2.80.
Non-recurring expense related to integration of WHI is expected
to vary between $15–20 million, while the full year impact of
amortization of acquisition intangibles is expected to stand at $36
million.
Our Take
Catalyst Health reported improved top-line on the basis of
enhanced operational efficiency and increased prescription volume.
Additionally, the acquisition strategy of the company proved to be
highly profitable, with both the recent acquisitions adding
substantially
to earnings. However, the expenses of the company are
constantly rising and effective cost control measures are required
to enhance profitability.
Currently, Catalyst Health carries a Zacks #3 Rank, which
translates into a short-term Hold rating, indicating no directional
pressure on the shares over the near term.
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