MedcoHealth Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of health insurer MedcoHealth Solutions (NYSE: MHS  ) got a nasty cold today and fell 11%.

So what: MedcoHealth lost a big pharmacy benefit contract with Blue Cross Blue Shield Association to CVS Caremark (NYSE: CVS  ) . The $3 billion contract begins next year and won't impact MedcoHealth's earnings during 2011.

Now what: This is obviously a big blow for MedcoHealth, but the news hasn't been the boost you might expect for CVS Caremark. CVS' stock is only up 2% on the big win, so it appears investors are focusing on the negative news for MedcoHealth today. I wouldn't jump into MedcoHealth on this dip, but I will take a second look at CVS because the stock was only trading at a 12.4 forward multiple before this big contract is factored into expectations.

Interested in more info on MedcoHealth Solutions? Add it to your watchlist.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Related Tickers

4/2/2012 8:00 PM
MHS.DL $70.30 Down +0.00 +0.00%
Medco Health Solut… CAPS Rating: *****
CVS $81.24 Down +0.00 +0.00%
CVS Health CAPS Rating: ****

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