Catalyst Health Beats, Revs. Miss - Analyst Blog
04 Mayo 2012 - 11:32AM
Zacks
Catalyst Health Solutions Inc. (CHSI) reported
first-quarter operating earnings per share of 62 cents, beating the
Zacks Consensus Estimate by 5 cents. The result also compares
favorably with 52 cents earned in the prior-year quarter.
Accounting for the CHI transaction,
transition and integration related cost of 11 cents, and
amortization of intangible assets of 12 cents, the company reported
net income of 39 cents per share, down from 45 cents per share
earned in the year-ago quarter.
Operational Update
Revenue grossed $1.45 billion in the quarter, up 30% year over
year. However, the top line failed to achieve the Zacks Consensus
Estimate of $1.51 billion. The year-over-year increase in revenue
was driven by added prescription volume from
Catalyst Rx Health Initiatives, Inc. (“CHI”),
commencement of services with new pharmacy benefits
management (“PBM”) clients and higher prices
of brand drugs. Nevertheless, client attrition, higher generic
utilization, coupled with higher member co-payments, dwarfed the
positives.
Additionally, total prescription volume, excluding
administrative services only (ASO) claims, rose to 30.7 million
from 24.9 million in the prior-year quarter. Meanwhile, ASO claims
jumped to 22.8 million from 0.1 million in the year-ago quarter,
attributable to a change in mix within the CHI client base.
Generic utilization in the quarter
improved to 76% from 74% in the year-ago quarter.
Gross profit surged 54.8% year over year to $95.3 million. The
addition of CHI, margin contribution from new
clients, better generic utilization and enhanced retail pharmacy
economics drove the improvement in gross profit. However, lower
margins on renewal business, client attrition and startup costs
associated with Script Relief were partial offsets.
Selling, general and administration
expense more than doubled to $67.7 million in the quarter due to
investments made in the CHI acquisition, Invest Now initiative, IT
infrastructure improvements and Script Relief. Total operating
expense escalated 35% year over year to $1.43 billion.
Operating income thus increased 19% year
over year to $46.3 million in the quarter.
Merger Update
On April 18, Catalyst
Health entered into a $4.4 billion takeover
agreement with rival PBM company, SXC Health
Solutions Corp. (SXCI).
As per the agreement, SXC Health will acquire Catalyst Health
for $28 per share in cash and offer
0.6606 shares of SXC Health in exchange of every share of Catalyst Health.
Following the acquisition, the shareholders of SXC Health and
Catalyst Health will own 65% and 35% of the combined company,
respectively. The takeover is expected to be completed by the
second half of this year.
Business Update
On March 19, Catalyst
Health announced a long-term agreement with Regence
Rx Inc. to exclusively provide pharmacy benefit management (“PBM”)
service to the latter’s clients through its PBM unit - Catalyst
Rx.
The PBM business of Catalyst Health will be boosted as Regence
Health Plans cover over 1.2 million policyholders.
The deal will be effective from May 1, 2012 to December 31, 2017
and carries an option for extension till December 2021.
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 continues to expect 2012 revenue in the range of
$5.8–6.2 billion and adjusted earnings per share guidance in the
range of $2.60–2.80.
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, as CHI is adding
substantially to volume and thereby, earnings.
However, the
expenses of the company are constantly on the rise, thereby
weighing on the margins.
We retain our
neutral long term recommendation on Catalyst Health. The
quantitative Zacks #3 Rank (short-term Hold rating) for the company
indicates no clear directional pressure on the stock over the near
term.
CATALYST HEALTH (CHSI): Free Stock Analysis Report
SXC HEALTH SOL (SXCI): Free Stock Analysis Report
WELLCARE HEALTH (WCG): Free Stock Analysis Report
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