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.
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