Medco Health Solutions (NYSE:MHS) Recommended as Long-term Play

While in the short term, especially 2011, Medco Health Solutions (NYSE:MHS) increase its SG&A expense, putting pressure on margins and earnings, going forward into 2012 and the next decade, they look like at strong long-term play with a variety of streams of revenue.

FBR said, "We continue to recommend MHS shares. The company introduced its long-term ten year outlook at its recent investor day in New York City and it verifies to us that the company has many avenues by which it can generate profitability. While 2011 is a year that lacks gross margin expansion and has a sizeable increase in SG&A expense, our expectation is that earnings can continue to grow considerably. As we look to 2012 and beyond, the prospects for continued growth from generic drug availability and specialty pharmacy is considerable. We have factored in a sizeable $3 billion of share repurchase over the next 12–15 months, but our new estimate is at the top end of the company’s guided range for non-GAAP EPS. The company does expect to roll its international operations into the Medco Celesio joint venture in 4Q10, but prospects remain promising as the United Biosource transaction has begun to contribute to results."

Medco closed at an even $61 Monday, gaining $0.38, or 0.63 percent. FBR maintains an "Outperform" rating on the company.