The market's choppy/consolidating tone, combined with the slow-growth/no-growth U.S. economy, suggests it is prudent to add a defensive stock or two to your portfolio, and with the aforementioned in mind, Medco Health Solutions is worth a review.
Medco Health Solutions (NYSE: MHS) is one of the largest U.S. pharmacy benefit managers, with services provided to client/member PBMs and physicians/pharmacies. (Note: Medco Health's shares split 2-for-1 on January 10, 2008.)
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.
MOST NOTEWORTHY: Smith International, Cerner and Coach were today's noteworthy upgrades:
JP Morgan upgraded Smith International (NYSE: SII) to Overweight from Neutral citing better risk/reward vs. group, and upside to estimates from Latin America drilling and its deepwater rig fleet. Note that Oppenheimer downgraded shares of SII based on valuation.
Jefferies believes Cerner Corp. (NASDAQ: CERN) in-line results and solid domestic bookings could alleviate the pressure on shares. Shares were raised to Buy from Hold.
Shares of Coach Inc. (NYSE: COH) were raised to Buy from Hold at Citigroup, citing sales stabilization and compelling valuation.
OTHER UPGRADES:
Medco Health (NYSE: MHS) was upgraded at Oppenheimer to Outperform from Perform.
ThinkPanmure raised VMware Inc. (NYSE: VMW) to Buy from Accumulate.
SunTrust Banks (NYSE: STI) was upgraded to Market Perform from Underperform at Keefe Bruyette.
MOST NOTEWORTHY: National City, Syntax Brillian and Medco Health were today's noteworthy upgrades:
Deutsche Bank upgraded shares of National City (NYSE: NCC) to Buy from Sell on valuation as they believe their $9.00 target is in-line with the company's franchise value.
Baird upgraded Syntax Brillian (NASDAQ: BRLC) to Outperform from Neutral based on recently announced strategic initiatives and valuation.
Jefferies upgraded shares of Medco Health (NYSE: MHS) to Buy from Hold as they believe the company's renewed PBM contract with United Healthcare (NYSE: UNH) removes a major overhang.
OTHER UPGRADES:
Friedman Billings raised Downey Financial (NYSE: DSL) to Market Perform from Underperform.
Volterra (VNASDAQ: LTR) was raised to Buy from Neutral at Piper.
Alliance Data (NYSE: ADS) was raised at JP Morgan to Overweight from Neutral.
Sometimes our biggest medical emergency is the cost of the drugs we need to treat our physical ailments. There is a firm in Franklin Lakes, New Jersey, that actively pursues initiatives to cut increasing drug costs and it has some clout. It is the nation's leading pharmacy benefit manager and operates the country's largest mail order pharmacy.
Medco Health Solutions (NYSE: MHS) serves some 65 million members in the U.S. and Puerto Rico. Patients fill their prescription needs through a network of close to 60,000 pharmacies, a mail-order program, or the company's online pharmacy. Medco helps contain pharmacy health care costs for private and public employers, health plans, labor unions, government agencies, and individuals served by the Medicare Part D Prescription Drug Program. Cigna (NYSE: CI) and Express Scripts (NASDAQ: ESRX) are major competitors. IBM (NYSE: IBM) is a major customer.
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.
TheStreet.com's Jim Cramer says that now, teetering financials and homebuilders will topple and safety plays will rule. Ouch.
Couple of tough days ahead. We were overbought going into this Fed decision; now we will have to pay for it, and pay for it big. We have to lose a lot that we gained, expecting that the Fed would work hand-in-hand with the Treasury Department to get us out of this jam.
But that's not going to happen now. You can see what will happen. They will kill the banks again. The fundraising that was going on will be halted. We will get some failures. The homebuilder credit lines? Some will not be extended.
TheStreet.com's Jim Cramer says that as counterintuitive as it seems, there are many stocks that will rise despite this huge bad news.
We're back in 1990 again. That was when commercial construction threatened to wipe out the U.S. banking system and the S&P 500 went down 13% in a heartbeat between the spring and the fall.
I trotted out this analogy in the summer to explain what a disaster could look like if the Fed, which at that time knew nothing, didn't do anything or, heaven forbid, did what the clueless Bill Poole wanted them to do, and tighten.
The market's been fighting with 1990 ever since. When I read about the losses and the need for the banks and the insurers to shore up capital -- $7.9 billion for Merrill, Dougie? Say it ain't so! -- I think to myself, "Oh my, it is 1990 when funding became a problem for every major bank." (Tremendous credit to my friend Doug Kass for flagging this.)
MOST NOTEWORTHY: BEA Systems, Nokia, Medco Health, Quest Diagnostics and PetSmart were today's noteworthy downgrades:
Citigroup downgraded shares of BEA Systems (NASDAQ: BEAS) to Hold from Buy on valuation following the $17/share offer by Oracle (NASDAQ: ORCL) as they think a public bidding war for the company is unlikely.
ABN Amro downgraded shares of Nokia Corporation (NYSE: NOK) to Hold from Buy on valuation and believes above consensus Q3 results are already priced into shares.
Wachovia downgraded Medco Health Solutions (NYSE: MHS) to Market Perform from Outperform on valuation.
The firm also downgraded Quest Diagnostics (NYSE: DGX) to Market Perform from Outperform, as they believe the prospects from stabilizing volumes and cost savings are reflected in valuation and Street estimates.
Credit Suisse downgraded shares of PetSmart (NASDAQ: PETM) to Neutral from Outperform citing aggressive pricing at Petco, accelerating growth initiatives, limited visibility around expense management, and lack of consistent results.
OTHER DOWNGRADES:
Methanex Corporation (NASDAQ: MEOH) was downgraded to Sector Underperformer from Sector Performer at CIBC.
You know you are in trouble when fans at the big game want to talk about the Federal Reserve's meeting. Well, then again, if you are an Eagles or Giants fan, that's pretty much all that's worth talking about.
The impact, though, is simply too outsized to be trusted. The setup is too hard. The decision is too un-gameable. I haven't liked this setup since we started rallying last week, and I liked it less when we moved up Monday morning.
We have been lucky, ever since the cut in the discount window rate, to live in a world where you might wake up and find that the Fed was taking action. The mystery has benefited every group in one way or another, from the homebuilders to the oil companies.
MedcoHealth Solutions, Inc. (NYSE: MHS) dispenses 500 million prescriptions each year, and assists drug plans with negotiating discounts with pharmaceutical companies and processing claims. The company today said it will pay $1.5 billion in cash to acquirePolyMedica Corp. (NASDAQ: PLMD), which distributes blood glucose test kits, insulin, syringes, and other supplies directly to the homes of a million diabetes patients through its Liberty Healthcare division.
One of my former students is an executive at PolyMedica and we recently discussed some of its efforts to cut costs and tighten its operations, but I had no idea this deal was in the works. The deal appears to make sense to me because MedcoHealth has a long history of making drug delivery more efficient. And my hunch is that MedcoHealth will streamline PolyMedica's delivery of diabetes supplies.
MedcoHealth envisions a big market for diabetes supply distribution. It estimates that 17 million Americans are currently treated for diabetes, with more than one million patients diagnosed each year. With diabetes care spending increasing by 14.5% annually, diabetes treatments by 2009 are expected to overtake cholesterol medicines as the fastest-growing drug category.
The 17% premium MedcoHealth is paying over Monday's closing price suggests that it believes PolyMedica will be able to add significantly to its profits as it takes a bigger piece of the diabetes market. With MedcoHealth's stock up following the announcement, investors seem to agree that this is a healthy deal.
MOST NOTEWORTHY: MRU Holdings (UNCL), CVS/Caremark (CVS), Medco Health (MHS) and Blackboard (BBBB) were today's noteworthy initiations:
Kaufman Bros. expects MRU Holdings (NADAQ: UNCL) to post a profit in Q4 for the first time due to its first student loan securitization and started shares with a Buy rating and $9 target.
Thomas Weisel believes shares of CVS/Caremark (NYSE: CVS) represent a compelling risk/reward at these levels, initiating shares with an Overweight rating and $51 target, given the positive trends in the market and the likelihood of successful merger integration.
Thomas Weisel believes Medco Health (NYSE: MHS) is well positioned to capitalize on continued generic conversions, starting shares with an Overweight rating and $100 target.
Banc of America would be buyers of Blackboard (NASDAQ: BBBB) current levels, initiating shares with a Buy rating and $50 target, given the company's defensible business model and market leadership position.
MOST NOTEWORTHY: The pharmacy benefit managers sector, financials E*Trade Financial Corp (ETFC) and TD Ameritrade Holding Corp (AMTD) and transports J.B. Hunt Transport Services (JBHT) and Knight Transportation (KNX) were today's most noteworthy initiations:
CIBC is positive on the pharmacy benefit managers group given increasing generic utilization, continued growth in specialty pharmacy, improving mail-order penetration and share repurchases. CIBC initiated Express Scripts, Inc (NASDAQ: ESRX) with a Sector Outperformer and $104 target as the firm expects continued strong performance as the company benefits from positive secular industry trends, and initiated Medco Health Solutions (NYSE: MHS) with a Sector Performer and $82 target on valuation.
On CNBC's MAD MONEY tonight, Cramer highlighted a couple of strategies he wanted to cover, as well as some new picks. He likes to find companies that are actually putting in new highs during a market slide, and he likes to find some stocks that only sold off because of the market, even though they have great things going.
His stocks hitting new highs were in tires and pharmacy benefit managers. His tire pick is The Goodyear Tire & Rubber Company (NYSE:GT) because the company is trimming costs and benefits to save money for shareholders. He cited a private research report showing what may be a $39 price on it (the stock closed below $29 today). In the PBM sector his major pick is Medco Health Solutions Inc. (NYSE:MHS) -- he calls the stock a "winner." He likes the cost containment the company offers, and believes Medco is due for a swing in 2008 that will be good. There are full details as to why he likes these if you want to access them.
Jim Cramer again slammed Advanced Micro Devices, Inc. (NYSE:AMD), saying that he really can't see a reason why the stock needs to exist. Management's decision to go into a price war with Intel was a death sentence, and the only thing that can help the company would be if Intel gets nabbed over anti-trust issues.
Later, he said he was on a bottom-fishing expedition -- for damaged stocks, rather than damaged companies. Yesterday he touted General Cable Corporation (NYSE:BGC), but his pick tonight was First Solar, Inc. (NASDAQ:FSLR). He usually slams anything solar or in alternative energy, but he has many reasons that he gives for liking this one over all the others. His comments are actually right on this one, so we just have to see how much of that huge rise was real in it.
He also gave the thumbs up again for some of his web names: He likes Google Inc. (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), IAC/InterActiveCorp (NASDAQ:IACI), and eBay Inc. (NASDAQ:EBAY).
Lastly, Cramer interviewed the CEO of VeriFone Holdings, Inc. (NYSE:PAY) and he says you should buy this one because they are blowing away numbers.
Jon Ogg is a partner in 24/7 Wall St., LLC; he does not own securities in the companies he covers.
Sometimes our biggest medical emergency is the cost of the drugs we need to treat our physical ailment. There is a firm in Franklin Lakes, New Jersey that actively pursues initiatives to cut spiraling drug rates and it has some clout. It is the nation's leading pharmacy benefit manager and operates the country's largest mail order pharmacy.
Medco Health Solutions Inc.(NYSE:MHS) serves some 65 million members in the U.S. and Puerto Rico. Patients fill their prescription needs through a network of close to 60,000 pharmacies, a mail-order program, or the company's Internet pharmacy. Medco helps contain pharmacy health care costs for private and public employers, health plans, labor unions, government agencies, and individuals served by the Medicare Part D Prescription Drug Program. It is the highest-ranked pharmacy benefit manager on the Fortune 500 list.
The firm pleased investors last week, when it topped the Street's fourth quarter earnings expectations and essentially matched revenue estimates. Management also offered solid upside guidance for FY07 earnings. Prudential, Goldman Sachs and First Albany subsequently reiterated "buy" recommendations and boosted their price targets to $80. MHS shares popped on the news and have since been consolidating the gain in a bullish "flag" pattern. Equities frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.
Altogether, brokers recommend MHS with ten "strong buys," seven "buys" and six "holds." Analysts see a 20% growth rate, through the next year. The stock's Price to Sales ratio (0.44), Price to Book ratio (2.51), Price to Free Cash Flow ratio (17.23), EPS Growth rate (27.27%) and Revenue per Employee ($2.80M) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 73% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $47.08 and $69. A stop-loss of $58 looks good here.
MOST NOTEWORTHY: Pharmion Corp (PHRM), Genesis Microchip (GNSS) and SanDisk Corp (SNDK) were some of today's most notable downgrades:
Pharmion Corp (NASDAQ: PHRM) was downgraded to Sell from Source of Funds at ThinkEquity, citing valuation.
Matrix USA downgraded Genesis Microchip Inc (NASDAQ: GNSS) to Strong Sell from Hold to reflect a share decline in revenues; they also believe shares are overvalued relative to the sector.
SanDisk Corp (NASDAQ: SNDK) was cut to Hold from Buy at WR Hambrecht. The firm said it has learned that a crack in the IP story has occurred, as Samsung has found a way to significantly reduce its royalty payments to SanDisk on its finished SD cards that it is currently shipping. The firm said this step by Samsung puts at risk ~15% of SanDisk royalty revenues as early as Q2:07, as Samsung is no longer willing to pay the 8% royalty rate to SanDisk on NAND MLC SD cards.
OTHER DOWNGRADES:
Stephens downgraded Group 1 Automotive Inc (NYSE: GPI) to Equal Weight from Overweight following disappointing Q1 results.
JMP Securities downgraded Flanders Corp (NASDAQ: FLDR) to Market Perform from Outperform.
Oppenheimer cut ValueClick Inc (NASDAQ: VCLK) to Neutral from Buy on valuation.
Matrix USA downgraded L-1 Identity Solutions (NYSE: ID) to Sell from Buy on valuation.
Goldman took Medco Health Solutions Inc (NYSE: MHS) off its Conviction Buy List, citing valuation.
Raymond James lowered Hiland Holdings (NASDAQ: HPGP) rating to Outperform from Strong Buy.
JP Morgan cut Waters Corp (NYSE: WAT) to Neutral from Overweight based on valuation.
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Most portfolios could benefit from a pharmacy supply play for defensive purposes, and 
TheStreet.com's Jim Cramer says that now, teetering financials and homebuilders will topple and safety plays will rule. Ouch.
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On CNBC's MAD MONEY tonight, Cramer highlighted a couple of strategies he wanted to cover, as well as some new picks. He likes to find companies that are actually putting in new highs during a market slide, and he likes to find some stocks that only sold off because of the market, even though they have great things going.
matched revenue estimates. Management also offered solid upside guidance for FY07 earnings. Prudential, Goldman Sachs and First Albany subsequently reiterated "buy" recommendations and boosted their price targets to $80. MHS shares popped on the news and have since been consolidating the gain in a bullish "flag" pattern. Equities frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.
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