The company delivered first quarter revenues of $6.0 billion and adj. EPS of $0.59 versus our estimates of $5.9 billion and $0.65 (consensus of $5.8 billion and $0.57). Our view is Catamaran’s first quarter results indicated an in line quarter with persisted PBM revenue growth backed up by the Cigna partnership, inclusion of Salveo specialty business, and ramp up of major contracts.
EBITDA margins in the quarter dropped in sequence to 3.6% from 3.8% in the prior quarter as a result of transaction expenditure associated to the firm’s acquisition activity in the quarter (Salveo, Healthcare solutions, and UnitedHealth).
In the quarter, UnitedHealth Group stated the acquisition of Catamaran in an all cash transaction for $12.8 billion ($61.50per share). The deal is anticipated to close in fourth quarter following several regulatory reviews. We anticipate that the UnitedHealth offer is expected to be the final offer for Catamaran derived from a limited universe of possible suitors.
We reiterate our “Sector Perform” recommendation on Catamaran. Our target price remains $61.50per share, stable with the UnitedHealth takeover offer.