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Monday, July 25, 2011

Medco (MHS) Downgraded by Several Analysts

There was a mixed reaction from analysts on the proposed merger between Express Scripts and Medco (NYSE: MHS), with the majority viewing it as highly risky for Medco, and suggesting shareholders to take their profits now rather than wait for another possible 9 percent gain when the deal closes, which isn't a certainty.

Another impetus for selling quickly, and one that was lost in the news cycle, was the fact that Medco announced that it was losing the UnitedHealth pharmacy benefits business. That happened on the same day the potential merger was announced, masking the negative side of the news.

Add that to the possibility the deal could be nixed, and you have a lot of risk in hanging onto Medco.

FBR Capital downgraded Medco Health Solutions from an “Outperform” rating to a “Market Perform” rating.

Davenport downgraded them from a “Buy” rating to a “Neutral” rating.

Medco was downgraded by Argus from a “Buy” rating to a “Hold” rating.

BMO Capital Markets downgraded them from an “Outperform” rating to a “Market Perform” rating.

Maxim Group health care analyst Anthony Vendetti may have been the most negatively aggressive on Medco, recommending investors get out of the company as soon as possible.

His reasoning is if the deal falls through and the market pays more attention to the loss of business from UnitedHealth, the stock will take a beating. He sees it being much better to take the 19 percent gains and run.

At stake is a spread of 9 percent, which in the eyes of these analysts isn't enough of an upside to justify staying in the company after the run up in share price over the last two trading days.

Medco closed Friday at $65.96, gaining $2.13, or 3.34 percent.

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