Goldman Sachs Comments On MHS Share Decline

Medco Health Solutions Inc. MHS shares were weak yesterday, down 5% in an already tough tape (S&P500 down 2%) following news that the California Public Employees' Retirement System (CalPERS) was reviewing reports of, according to CalPERS, potential improper conduct regarding a historical consulting arrangement, Goldman Sachs reports.

“Details around the allegations are limited but following a CalPERS March 15 (Tuesday) Board meeting, Medco confirmed (March 16) it had received notice that the current negotiations to extend its contract with CalPERS (as of January 1 2012) have been terminated,” Goldman Sachs writes.

“Medco will continue to provide services through December 31, 2011 and has indicated that the contract has not been historically material to EPS nor was it expected to be going forward.

“While a negative headline, we expect the impact to EPS will likely be limited although the share reaction has been meaningful with Medco underperforming the S&P 500 by 8% in the last two weeks. Overall, no change to our view on the shares with Medco trading at a supply chain low (ex-CVS), at 10.9x our 2012 EPS.”

Medco closed Wednesday at $56.23.