MedcoHealth a Case of an Inefficient Market

MedcoHealth Solutions Inc. (MHS), a pharmacy benefits manager, recently raised full-year diluted guidance, excluding items, to a range of $2.30 to $2.33 – growth upwards of 28% compared to the last fiscal year, up from previous guidance of $2.27 to $2.31 per share. Looking a bit forward, the consensus analyst estimate for full year 2009 has been moved up to $2.74, implying somewhat lower growth at 19% (but still good), and for all that, the stock trades at a teenager-like PE. After touching a post-earnings high of $50.16 on Jul. 25, shares have languished, continually hovering just above its 50-day and 200-day moving average support at $47.42 and $47.89 respectively. Even with today’s 3% move that coincides with a major market rally, the stock still appears to be inexpensively priced. This could be a case of an inefficient market having its way with Medco.