Medco Health (MHS) Loses Major Contract to Rival CVS (CVS)
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MedcoHealth Solutions Inc. (NYSE: MHS) shares are under heavy pressure Friday after the company lost the Federal Employee Program mail order and specialty pharmacy contract to rival CVS Caremark (NYSE: CVS).
The contract covers more than 5 million federal employees, retirees and dependents and generated nearly $3 billion in annual net revenues for MedcoHealth. This represents about 4 percent of this year's estimated revenue for the company.
MedcoHealth said there will be no impact on this year's results due to the December 31, 2011 transition date.
Analysts at Deutsche Bank said the news is a "significant negative" for MedcoHealth. The loss of the contract will negatively impact MHS's 2012 earnings per share by approximately $0.30. The firm also thinks the company could lose United Health (NYSE: UNH) in 2013, which is roughly $0.40 per share in earnings. The firm is reiterating a Hold rating and expects shares to be down meaningfully.
The winner, CVS Caremark has already provided the retail portion of the Federal Employee Program. The $3 billion addition to revenue will add 9%. with Caremark EBIT margin of 4%. Analyst at Goldman Sachs said the deal could yield 4% EPS accretion for CVS. The firm also added the win "represents an incremental validation of CVS as a viable player in the PBM space," and will aid investors confidence. The firm has a Buy rating on the stock.
Shares of MedcoHealth are down 11 percent to $57.35, while CVS is up 1.9 percent to $38.86.
The contract covers more than 5 million federal employees, retirees and dependents and generated nearly $3 billion in annual net revenues for MedcoHealth. This represents about 4 percent of this year's estimated revenue for the company.
MedcoHealth said there will be no impact on this year's results due to the December 31, 2011 transition date.
Analysts at Deutsche Bank said the news is a "significant negative" for MedcoHealth. The loss of the contract will negatively impact MHS's 2012 earnings per share by approximately $0.30. The firm also thinks the company could lose United Health (NYSE: UNH) in 2013, which is roughly $0.40 per share in earnings. The firm is reiterating a Hold rating and expects shares to be down meaningfully.
The winner, CVS Caremark has already provided the retail portion of the Federal Employee Program. The $3 billion addition to revenue will add 9%. with Caremark EBIT margin of 4%. Analyst at Goldman Sachs said the deal could yield 4% EPS accretion for CVS. The firm also added the win "represents an incremental validation of CVS as a viable player in the PBM space," and will aid investors confidence. The firm has a Buy rating on the stock.
Shares of MedcoHealth are down 11 percent to $57.35, while CVS is up 1.9 percent to $38.86.
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