U.S. pharmacy benefits manager Express Scripts Holding Co (ESRX.O) said analyst forecasts for its 2013 results were too aggressive, casting doubt on how well it is integrating its $29 billion purchase of Medco Health Solutions Inc and sending its shares down 14 percent.
Express Scripts, which also reported a better-than-expected third-quarter profit, cited the weak business climate and unemployment outlook in its gloomy projection.
"It was out of left field," said Jefferies & Co analyst Brian Tanquilut. "The stock is going to take a beating as people reset their growth expectations for next year."
Express Scripts was expected to benefit from business synergies and cost savings from the Medco deal, which more than doubled its revenue base.
The company won U.S. antitrust clearance earlier this year to buy Medco after a contentious eight-month review. Pharmacy benefits managers, or PBMs, administer drug benefits for employers and health plans and run large mail order pharmacies.
While its 2012 results appear to be on track, Express Scripts' pessimistic comments about next year raise questions about the Medco integration and what else the company might be bracing for on the horizon, Tanquilut said.
"To blame it on the economy is a little surprising," he said. "What they are basically telling us is the Medco acquisition is not as great as we thought it is going to be."
St Louis-based Express Scripts said third-quarter earnings excluding special items were $1.02 per share, compared with 79 cents a year ago.
Analysts on average were expecting 99 cents a share, according to Thomson Reuters I/B/E/S.
Net income rose to $391.4 million from $324.7 million the year before. Third-quarter revenue increased to $27 billion from $11.57 billion. Claims rose 116 percent to 398.6 million.
Express Scripts raised the lower end of its forecast range for 2012 earnings by 5 cents and now projects full-year profit this year of $3.65 to $3.75 a share.
But it deemed analysts' forecasts for its 2013 earnings as "overly aggressive," citing an expected loss of claims from its UnitedHealth Group Inc (UNH.N) business and the economic environment. Medco lost its biggest account, insurer UnitedHealth, prior to the deal with Express Scripts.
Analysts had projected Express Scripts would earn $4.49 a share in 2013, according to Thomson Reuters I/B/E/S.
The weak economy has hurt demand for healthcare services and prescription drugs as patients struggle without health insurance or face higher out-of-pocket costs for their medical expenses.
Express Scripts said it expects the use of healthcare services to remain constrained and client demand and expectations to increase. The weak economy will likely result in clients having fewer employees enrolled in its plans, the company said.
"It begs the question, what is it that they are seeing?" said Tanquilut. "Is it company-specific, or are they seeing a broader trend that no one else has talked about so far?"
Express Scripts' stock was down 14 percent in after-hours trading from a close on Monday of $62.88 on Nasdaq.
(Reporting by Susan Kelly in Chicago; Editing by Gary Hill and Andre Grenon)