Soft Guidance Hammers Medco

In the meantime, he said, Medco has already made some important progress after losing its $1.5 billion contract with the federal government during an ongoing probe of the company. So far this year, he said, the company has enjoyed strong customer retention and solid contract wins.

Less than two weeks ago, in fact, Medco announced that it had regained the big account it lost two years ago serving the California Public Employees' Retirement System. Meanwhile, it has completed a $2.3 billion buyout of Accredo Health that significantly increases its presence in the attractive specialty pharmacy space.

Going forward, Haddad expects Medco's stock to keep rising in response.

"We believe Medco is at an inflection point," Haddad told the Wall Street Transcript. "Its valuation multiples are below those of the other two leading independent PBMs (Caremark (CMX Quote) and Express Scripts). However, we believe Medco's upside on earnings is as strong as the other two. From our perspective, Medco's stock should benefit by closing that valuation gap."