NEW YORK—Pharmacy benefits manager Medco Health Solutions Inc. reports earnings for the first quarter on Tuesday. The following is a summary of key developments and analyst opinion related to the period.
OVERVIEW: Medco Health and its peers continued to benefit from an influx of generic drugs entering the market during the first quarter. Generic drugs are considered low-cost products with a high profit margin. Large generic drug developers including Teva Pharmaceutical Industries have also been more aggressive at challenging patents and launching generic versions of blockbuster drugs before the patents expire.
Still, concerns over Medicare reimbursement rates dogged the company and its peers throughout the quarter and cuts to diabetic supplies could effect revenue.
During the quarter, the Franklin Lakes, N.J., company agreed to sell $1.5 billion in senior notes in a public offering. The proceeds were used to repay debt from the $1.5 billion buyout of PolyMedica Corp. last year.
EXPECTATIONS: Analysts surveyed by Thomson Financial expect a profit of 53 cents per share on revenue of $12.25 billion, on average.
Medco previously said it expects full-year profit to range from $2.27 to $2.31 per share, excluding amortization. Analysts expect a 2008 profit of $2.30 per share.
ANALYST TAKE: Wall Street is maintaining a positive outlook for the company and expects it to either meet or top profit forecasts.
Oppenheimer & Co. analyst Charles Rhyee, in a note to investors April 23, said he expects strong first-quarter results and said the stock could still gain in value.
Meanwhile, Wachovia Capital Markets analyst Matt Perry, in an April 16 note, said current valuations of Medco are expensive and leave only modest room for further growth. But, the company and sector's fundamental positions remain strong and he is looking to the company's first-quarter results for signs that further upside is possible.
He did express concern over the weakening economy's impact on prescription volume growth and said it is possible that increasing copays an coinsurance could hurt sales.
WHAT'S AHEAD: Wall Street has pointed to the company's favorable long-term growth outlook, buoyed by a three-year contract extension with UnitedHealth Group Inc. Also, earnings could gain a significant boost starting in 2010 as more generic versions of blockbuster drugs hit the market.
STOCK PERFORMANCE: Medco shares fell 14 percent to close at $43.79 March 31. Results are adjusted for a 2-for-1 stock split in the form of a dividend distributed in January.
