Express Scripts ESRX reported yet another stellar quarter. We are maintaining our fair value estimate for now, but may be inclined to raise it as we gain more clarity about the effect of the NextRx acquisition on Express Scripts' financials. Third-quarter results showed a continuation of the trend of slow revenue growth and significant gross margin expansion that more than made up for higher selling, general, and administrative expenses. Compared with the prior-year quarter, Express Scripts' revenue increased 3.1% as adjusted prescription volume increased 2.3%. SG&A increased 10% excluding a legal settlement charge and costs related to the NextRx acquisition. However, the gross margin improved to 11% from 9.5%. Adjusting for all unusual items, earnings per share increased 22%.Gross margin improvements have been the primary source of Express Scripts' earnings growth during the last several years. However, given that the firm's entire raison d'etre is to save clients money on their pharmaceutical costs, we are somewhat skeptical that gross margin expansion can continue at this pace for much longer.
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Analyst Notes
09-29-09 | 12:07PM Walgreen Pushes 90-Day Scripts
07-30-09 | 5:57PM NextRx Costs Weigh on Express Scripts' 2Q
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