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Medco Health Solutions(MHS) is a $20 billion pharmacy benefit manager, a firm that administers and fills nearly a billion prescriptions each year. In all, Medco provides pharmacy services to nearly one in five Americans -- an absolutely massive chunk of the population to count as your customers. And it could be about to get bigger.
That's because Medco is in the process of merging with long-time partner
Express Scripts (ESRX) in a deal that's currently awaiting approval. The merger would mark a major shift for both companies, but in this current market, I don't think it's being adequately accounted for by investors.
Neither does Wall Street; rising analyst expectations suggest that shares could be in demand from an institutional side in August.
Medco has been adept at boosting its margins by encouraging its customers to opt for generics (a practice that, when too aggressive, has gotten the company in trouble in the past). At the same time, Medco's massive scale has afforded the company costs that few can meet, resulting in huge revenue growth in the trailing five years.
Investors should keep their eyes glued to Medco's merger news. While a pre-merger play in contention does carry some added risks, the payoff may be well worth it.
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