Deutsche Bank Downgrades Medco Health Solutions To Hold

In a report published by Deutsche Bank, Medco Health Solutions

is downgraded to Hold given the uncertainty post CalPERS. Deutsche Bank said that late Last Wednesday, CalPERS, the largest pension fund manager in the US announced that it was terminating its negotiations with MHS following a review of business practices by former employees. “Our PT of $55.00 reflects the midpoint of our DCF range, which equates to a P/E of 14x our FY11 EPS estimate of $4.05 and 11x our FY12 EPS estimate of $5.05. Risks: potential for MHS to lose clients given reputational risk from CalPERS loss, a predatory pricing environment as competitors try to take advantage of MHS' woes, and a perceived lack of differentiation of services driving down margins; Upside risks: potential for early resolution and MHS retaining key contracts.” Medco Health Solutions closed yesterday at $53.19.