Medco Health (NYSE:MHS) turned in another strong earnings performance on Tuesday. Nevertheless, the market's response was not so enthusiastic. Despite the robust results, the stock closed down 7.4%, evidently on concerns over future earnings growth. While Medco's prospects for long-term success appear solid, investors' caution may indeed be warranted.

The company disclosed that first-quarter revenue came in at $8.7 billion, down 2.2% from the same period in the prior year, as lower-priced generic drugs made up a higher proportion of the top line. Earnings, meanwhile, surged 26.6% to $131.2 million; this is hardly unsatisfactory growth.

Furthermore, future trends look good. The firm is closing in on its acquisition of AccredoHealth (NASDAQ:ACDO), a purchase that will give Medco a major presence in the fast-growing area of specialty pharmacy services. Meanwhile, Medco appears to be locking in another significant avenue of growth as it recently announced that it will collaborate with GlaxoSmithKline (NYSE:GSK) to provide prescription drug benefits under Medicare's forthcoming plan. With respect to guidance for 2005, Medco expects per-share earnings of between $1.94 and $2.03, which amounts to an increase of between 11% and 16%. While these numbers are not exactly mind-blowing, they are still respectable.

Nevertheless, there is a good reason to be cautious about Medco. Last year, the firm settled a multi-state investigation into its business practices. But, as has reported, Medco and its peers, including Caremark Rx (NYSE:CMX) and Express Scripts (NASDAQ:ESRX), continue to face intense scrutiny from government authorities.

Over the long term, Medco's dominant position in the health-care system appears unshakeable. Still, with Medco shares up about 18% so far this year, and a federal probe underway, the best course seems to be to wait on the sidelines.

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.