Jefferies Has Buy On Medco Health Solutions Inc. (NYSE)

Jefferies & Co. has a Buy rating on Medco Health Solutions Inc. MHS. In a note to clients, Jefferies writes, "MHS's stock is like to rebound near-term. MHS is currently trading at a three multiple point discount to ESRX on an FY12 EPS basis. The stock, which has recently been stung by the announced loss of the CalPERS contract at the end of this year (an estimated $0.07 earnings hit in 2012) and a corresponding SEC subpoena related to a consultant MHS hired in 2004 to help with a contract audit, appears to be pricing in the potential loss of the company's Federal Employee Plan contract, the renewal of which we should hear about in six weeks (and we would argue that MHS's current valuation also largely reflects an expected loss of its UnitedHealth contract at the end of 2012). The FEP contract, which is formally known The Blue Cross and Blue Shield Association's government-wide Service Benefit Plan, generates an estimated $0.30 of annualized earnings for MHS. If the company retains this contract, the stock will likely pop. If it doesn't, the stock still remains discounted by 2.4 multiple points to ESRX. In the meantime, expect MHS to talk optimistically about the company's outlook, something that will likely push the stock higher." Shares of MHS gained $1.48 on Friday to close at $53.72.