Medco Health: The right prescription for a choppy market

Posted Dec 13th 2007 12:55PM by Joseph Lazzaro
Filed under: Stocks to Buy

Most portfolios could benefit from a pharmacy supply play for defensive purposes, and Medco Health Solutions (NYSE: MHS) is worthy of consideration for this role. Medco Health is one of the largest pharmacy benefits managers in United States, with services provided to member health plans offered by unions, HMOs, and corporations, among other organizations.

Analysts like Medco's high account retention, new business wins, economies of scale, and the company's entry into the Medicare Part B segment with its acquisition of PolyMedica. The Reuters F2007/F2008 EPS consensus estimates for MHS are $3.60/$4.38.

The risks? Analysts have their eye on the increased market penetration of generic drugs and some pricing pressure in contract renewals. Also, the stock's PE ratio of 30 is high, even considering MHS's growth prospects, hence the stock is vulnerable to a pull-back. The problem with the 'buy on pull-back' tactic here is that MHS's pull-backs have been mild, so there's no guarantee of a 5% pull-back before a share purchase decision.

The First Call mean rating for MHS is Buy (20 firms). The mean 2008 target is $106.80 (high: $115, low: $88).

Stock Analysis: Medco Health is a moderate risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from MHS's shares. Consider a stop loss of $67.

Tags: defensive stocks, drugs, employee benefits, health care, health care costs, Medco Health, MHS, PBMs, pharmacy benefits managers

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Reader Comments (Page 1 of 1)

12-14-2007 @ 10:47AM

nhaiji said...

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1-22-2008 @ 4:33PM

Consumer said...

Medco Prescription Services are HORRID!

When a prescription service tries to play doctor....................something is seriously wrong.

Walk up to the pharmacy and try to get the meds you've been taking for 20 years and suddenly this idiotic company says, No, we wont pay for that medicine, but, why don't you try this other one.

WTF?
My doctor prescribes that medicine for medical reasons and Medco has NO RIGHT to deny coverage on that medication.

What gives Medco the right to alter my prescription medications without my doctors consent or approval?

Medco is a health care nightmare and a danger to the well being of thousands of unsuspecting consumers.