Medco Probe Exposes Wall Street Split

Medco's (MHS Quote) immune system may not be as strong as some analysts think.

The giant pharmacy benefit manager, or PBM, has enjoyed two upgrades this month due to growing confidence in the company's health. Both Raymond James and Banc of America raised their ratings on the stock after seeing Medco win new business that will help offset the big federal contract it lost during an ongoing government probe of the company. But Banc of America went a step further by declaring that Medco has put its biggest regulatory headaches behind it.

"The company's highly publicized legal challenges have been dramatically reduced by high-profile settlements with a consortium of states attorneys general, as well as the non-monetary portion of the U.S. attorney's 'whistleblower' lawsuit," Banc of America analyst Robert Willoughby wrote when upgrading Medco to buy over the weekend. "With much of its regulatory difficulties resolved, our focus is on potential uses of more than $1 billion in cash reserves next year." ...