Citi Gives Color On Express Scripts Following Earnings Conference Call

Express Scripts ESRX management surprised investors by noting that 2011 would be a more back-end loaded earnings year, with Q1-11 results coming in below Q4-10 at the EPS line. The consensus estimate was for $0.73, ahead of the $0.71 reported in Q4-10. The negative revision versus consensus appears to be driven by startup costs associated with bringing new customer starts online and normal start of the year accruals that should recede as the year progresses. While investors might be disappointed by a back-end loaded year, Citi finds these to be high class problems for ESRX. Costs associated with new client starts are somewhat of a positive leading indicator, especially as the company laps these costs in 2012 when generic Lipitor and Plavix are seeing broad distribution. It believes that these costs should be largely behind the company by 2H-11, allowing for faster margin expansion and robust profitability in 2012. Citi has a Hold rating on ESRX and a $59 PT ESRX closed Thursday at $56.77