Catalyst Health Beats on Volume - Analyst Blog
February 22 2012 - 7:00AM
Zacks
Catalyst Health Solutions Inc. (CHSI) reported
fourth-quarter operating earnings per share of 69 cents, beating
the Zacks Consensus Estimate by 3 cents. The result also compares
favorably with 56 cents earned in the prior-year quarter.
Operating income amounted to $50.8 million, up from $37.4
million in the fourth quarter of 2010. Operating income in the
reported quarter excludes the impact of non-recurring items such as
transaction costs and integration expenses related to the Walgreens
Health Initiatives Inc. (“WHI”) acquisition and intangible asset
amortization related to acquisitions. Including the non-recurring
items, operating income amounts to $32.3 million.
The year-over-year upsurge was owing to strong prescription
volume growth, which supported the top line and improved
operational performance. Besides, the acquisition of WHI was
significant and provided meaningful earnings growth. The
acquisition further led to additional expenses thereby partially
mitigating earnings growth.
Net income reported by Catalyst Health was $19.1 million or 39
cents per share, down from $22.6 million or 51cents in the
prior-year quarter. Revenues for the reported quarter climbed 38%
year over year to $1.54 billion from prior year earnings of $1.12
billion. The rise is attributable to higher prescription volume and
higher drug prices, which were partly offset by the impact of
increased generic utilization.
Additionally, total prescription volume excluding administrative
services only (ASO) claims rose to 32.1 million from 24.6 million
in the prior-year quarter. The growth of new clients along with the
impact of the WHI acquisition resulted in the increase in
prescription volume. Meanwhile, ASO claims increased to $21.1
million from $0.12 million in the year-ago quarter due to the
impact of the WHI acquisition.
Generic utilization climbed to 75% from 73% in the fourth
quarter of 2010, while gross profit rose to $92.6 million from
$66.1 million in the year-ago quarter. Gross profit of the reported
quarter includes the effect of amortization of intangible assets of
acquired companies to the tune of $5.6 million. The increase in
gross profit was attributable to additional volumes from the WHI
acquisition, margin contribution from new clients and higher
generic utilization, which were partly offset by compressed margins
in renewal business.
Total operating expenses for the reported quarter upped to $1.51
billion from $1.08 billion in the year-ago quarter. Selling,
general and administrative (SG&A) expenses surged 110.1% to
$60.3 million from $28.7 million in the prior-year quarter.
Full-Year 2011 Highlights
For full-year 2011, Catalyst Health reported operating earnings
per share of $2.37, breezing past the Zacks Consensus Estimate of
$2.35 and the year-ago earnings of $1.93. Operating income declined
to $114.2 million in 2011 from $132.5 million in the prior year.
Net income came in at $67 million or $1.39 per share against $81
million or $1.82 per share in the prior year.
Total revenue was $5.33 billion, up 42% year over year from
$3.76 billion, while total expenses increased to $5.22 billion from
$3.63 billion in the prior year. Additionally, total prescription
volume excluding ASO claims rose to 113.4 million from 84.0 million
in 2010.
Business Update
On February 21, 2012, Catalyst Health announced the extension of
its subsidiary Catalyst Rx’s alliance with WellCare Health
Plans Inc. (WCG). Catalyst Rx provides pharmacy
benefit services to the company.
Outlook
Catalyst Health affirmed its 2012 revenue guidance range of
$5.8–6.2 billion and adjusted earnings per share guidance range of
$2.60–2.80 per share.
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 $40
million.
Conclusion
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
advantageous, with WHI adding substantially to volume and thereby,
earnings. The acquisition is expected to be profitablein future as
well and is projected to generate EBITDA of $10 million and $15
million in the first and second quarters of 2012, respectively.
However, the expenses of the company are constantly rising,
leading to a decline in the bottom line. Thus, effective cost
control measures are required to enhance profitability.
Currently, Catalyst Health carries a Zacks #4 Rank, which
translates into a short-term ‘Sell’ rating. However, considering
the fundamentals, we maintain a long-term ‘Neutral’ recommendation
on the shares.
CATALYST HEALTH (CHSI): Free Stock Analysis Report
WELLCARE HEALTH (WCG): Free Stock Analysis Report
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