TSC Ratings' Updates: Bristol-Myers

We've upgraded pharmacy benefit management company Medco Health Solutions(MHS Quote) from hold to buy, driven by its revenue growth, impressive record of earnings per share growth, increase in net income, good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Revenue rose by 15% since the same quarter a year ago, outperforming the industry average of 3.6% and boosting EPS. Net income increased by 37.7%, from $214.8 million to $295.7 million, outperforming the S&P 500 and the health care providers and services industry. Net operating cash flow has significantly increased by 327.3% to $597 million, vastly surpassing the industry average cash flow growth rate of 50.1%. The debt-to-equity ratio of 0.8 is somewhat low and is below the industry average, implying a relatively successful effort in the management of debt levels. Its quick ratio of 0.8, however, is somewhat weak and could be cause for future problems.

EPS improved by 48.7% in the most recent quarter compared with the same quarter a year ago. During the past fiscal year, Medco Health increased its bottom line by earning $1.62 vs. $1.05 in the prior year, and this year, the market expects an improvement in earnings to $2.33.

We've upgraded SAIC(SAI Quote), which provides scientific, engineering, systems integration and technical services and solutions, from hold to buy, driven by its revenue growth, growth in earnings per share, increase in net income, notable return on equity and reasonable valuation levels. We feel these strengths outweigh the fact that the company shows low profit margins.