Thursday July 09, 2009
The Cabot Benjamin Graham Value Letter assesses stocks based on the investing criteria of legendary value investor. Here, editor J. Royden Ward looks at Medco Health (NYSE: MHS).
"Medco is the largest pharmacy benefit manager in the U.S. Spun off from Merck & Co. in 2003, the company processes and pays for prescription drug claims.
"As an intermediary, Medco negotiates discounts from drug manufacturers and sells at a discount to pharmacies, health plans and Medicare Part D participants. In addition, Medco lowers clients’ costs by encouraging the use of generic drugs.
"How cheap is Medical Health Services? The shares are undervalued at 16.3 times forward EPS. The company is well-positioned in the fast-growing pharmacy benefit management (PBM) sector.
"MHS is profiting from the increasing use of mail order to purchase drugs, as well as the increasing use of generic drugs compared to prescription drugs. We expect the company to pursue acquisitions to ensure 20% EPS growth during the next several years.
"New health plans being considered in Congress should benefit MHS. Overall, we expect MHS shares to advance to our Minimum Sell Price of 61.70 within two to three years."
