Analysts React To Diplomat Pharmacy's Q4 Earnings, Concerning Guidance

Diplomat Pharmacy Inc DPLO on Friday reported its previously delayed fourth-quarter earnings miss and concerning guidance, which sent the stock tumbling nearly 14 percent.

The Analysts

Mizuho Securities' Ann Hynes maintains a Neutral rating on Diplomat Pharmacy with a price target lowered from $8 to $6.

Raymond James' John Ransom maintains at Market Perform.

Morgan Stanley's Ricky Goldwasser maintains at Equal-weight, price target lowered from $10 to $8.

Mizuho: Pressure To EPS Beyond 2019

Diplomat Pharmacy's fourth-quarter revenue and EBITDA came in near the lower end of management's own guidance while adjusted EPS was in-line with expectations, Hynes said in a research report. Cash flow from operating activity (CFFO) was notably lower year over year due to working capital changes.

Management also lowered its revenue guidance for 2019 to -15 percent with Specialty pharmacy and PBM revenue falling 14 percent and 26 percent, respectively, while adjusted EBITDA was also guided to be down 33 percent.

Hynes said management's poor guidance is due to increased commercial and Medicare Part D competition and these pressures are likely to "reduce EPS visibility" beyond 2019.

Raymond James: What Was Said On The Conference Call

Management's post-earnings conference includes five highlights, Ransom said in a research report. These include:

1. The addition of two limited distribution drugs in the fourth quarter brings its total above 125;
2. January trends in the pharmacy benefit mangers and specialty business was short of expectations and remained lower since the end of the month;
3. The competitive environment is becoming more difficult due to more exclusive networks from PBMs and health plans;
4. Management was made aware of a large cut from one of its payors in late January; and
5. Each 1 percent change in the rate of branded inflation can create a $1.3 to $1.4 million impact, which is likely smaller than what the market assumed.

Morgan Stanley: The 'Jewel Of The Portfolio

Diplomat's infusion asset represents the "jewel of the portfolio" and should account for around 60 percent of 2019's profit, Goldwasser said in a research report. The business also boasts faster growth profiles and higher margins compared to other segments and could be seen as an attractive take out candidate.

Goldwasser said the appointment of Daniel Davison as CFO will bring "significant" pharmacy and PBM experience, however, the changing dynamics within the PBM space implies prior experience "needs to be balanced with openness."

Price Action

Shares of Diplomat Pharmacy were trading 4.8 percent higher at $5.82 Monday afternoon.

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