Express Scripts (ESRX)

In the 3-months ending April, ESRX has posted gains in 9 of the past 10 years, generating a 11.87% average return and a 11.47% median return. ESRX's standard deviation is 13.88% in the period and its correlation to the SPY is 0.01.
 

The percentage of generic drugs prescribed should climb as the patent cliff re-exerts this year to $34 billion and jumps to $66 billion in 2015.  As more high cost specialty drugs launch, a major opportunity to help payers redirect patients to lower cost solutions, comply with regimens, verify payments at contracted rates, and capture rebates offers potential growth. Total trend drug spend grew 2.7% in 2012, led by an 18% jump in specialty.  Therapy classes with the biggest increase in spending were hepatitis C, respiratory, and cancer.  Hep C spend pressure will grow more in 2014 following the launches of Sovaldi and Olysio.  Oncology spend will also continue higher as personalized gene therapies launch.  Utilization is likely to climb as therapies migrate from infusion to oral dosing.  Improved therapies -- including longer lasting drugs -- are likely to boost medication adherence. 

Overall, ESRX estimates specialty drug spending will grow 67% between 2012 and 2015.  More broadly, demand for cost-saving services will remain favorable as payers seek to leverage post-reform enrollment for profit growth. ESRX sales totaled $78.3 billion in the nine months ending September, up from $66.3 billion the year before.  Home delivery and specialty revenue represented $28.1 billion of those sales, up from $23.2 billion last year. The generic fill rate grew to 80.7% for the period, versus 78% a year ago.  The home delivery generic fill rate grew to 74.8% from 72.2% in the fourth quarter and 74.5% from 70.6% in the nine month period. ESRX bought back $1.55 billion in stock through the first nine months, including 11.6 million shares in the third quarter. The company entered into a 20 million share, $1.5 billion accelerated buyback program on December 10th. ESRX has beaten the street in three of the past four quarters and analysts expect earnings per share will reach $4.94 this year, up from $4.32 in 2013. NOTE: ESRX reports Q4 on February 20th.

Q3 EPS Transcript

The Manitowoc Company (MTW)

In the 3-months ending April, MTW posted gains in 9 of the past 10 years, generating a 20.45% average return and a 9.51% median return. MTW's standard deviation is 22.49% in the period and its correlation to the SPY is 0.31.
 

Sales have grown from $1.6 billion in 2003 to $4 billion in 2013, up more than 150%, while EBITDA has grown much more quickly, up 442% in the period.  Sales outside the U.S. have grown from less than 10% in 2000 to more than 50%, with emerging markets representing 25% of sales, up from 2% in 2000.  Despite the geographic diversity, more opportunity exists given APAC is just 13% and LatinAm is just 6% of sales (World Cup, Summer Olympics). European recovery also offers an opportunity given Europe is 20% of sales and weak comparisons provide chances for accelerating year-over-year growth. 65% of crane sales (61% of total revenue) come from energy and infrastructure. Improving construction spending, including a pickup in commercial activity from here, provides tailwinds.  Crane orders were 30% higher in Q4 than a year ago.  U.S. construction spending in December improved 5.3% from a year ago. Operating profit in the crane segment has grown from $90 million in 2009 to $219 million in 2013. 55% of foodservice (Merrychef, Frymaster, Indigo) sales (39% of revenue) is replacement. Emerging market investment in foodservice offers a catalyst for demand given food operator sales in China and India are expected to grow more than 140% between 2009 and 2015.  Operator sales are also projected to grow 93% for Brazil, 80% across South America, and 68% in Central America. 

That growth suggests emerging market opportunity given APAC and LatAm represent just 13% and 2% of segment sales, respectively.  Food service sales grew 10% YoY in Q4.  Operating profit for the segment has grown from $202 million in 2010 to $250 million in 2013.  Restaurants account for 66% of foodservice sales and chains are expected to spend $5 billion on foodservice equipment between 2009 and 2015.  Companywide, cost cuts, debt reduction, and a focus on new higher margin products have helped lift operating margin from 8% in 2010 to 8.9% in 2013. Full year net income improved to $1.05 per share in 2013, up from $0.76 last year (adjusted $1.45 versus $0.83).  Improving profitability has allowed the company to significantly lower its debt, including a $258 million reduction this past year.  That brought MTW's long term debt to $1.5 billion, down from $2.9 billion in 2008.  MTW is guiding for debt to EBITDA dropping below 3x this year; which would be less than half levels registered in 2010.  MTW has beat in three of the past four quarters and analyst estimates have increased from $1.94 to $2.09 for 2015 over the past 7 days.

Corporate presentations
Q4 EPS Transcript