Shares of my former employer, Express Scripts (ESRX), a leading pharmacy benefits manager in the U.S., are going to fall a few points this morning. Earnings reported last night were 2 cents above expectations but the momentum traders wanted more.
Express Scripts had beaten estimates by a fairly wide margin in recent periods, and bulls were undoubtedly hoping for another "beat and raise" quarter. They got the "beat", but not the "raise".
Full year guidance remained at $3.10 to $3.22 per share in earnings. ESRX rarely misses guidance, so they will be fairly conservative. They don't raise guidance often, and when they do, it's usually only once per year.
At $93 per share, the stock was trading at 30 times 2006 earnings coming into the latest report, historically an astronomical multiple for a PBM company. It's true that accretive acquisitions are boosting growth rates above competitors like Medco (NYSE:MHS) and Caremark (CMX), but 30 times earnings for ESRX is too rich, in my view.
As a result, profit taking is in order, and investors have already begun that process this morning.