Out Fox The $treet

Great news for one of the weakest stocks in our Net Payout Yield model. Express Scripts (ESRX) agreed to purchase MedcoHealth Solutions (MHS) for $29B. The deal gives MHS shareholders $71.36 based on the closing prices on 7/20 amounting to $28.8 in cash and 0.81 shares of ESRX. Considering ESRX is up 6% today the value of the deal got much more attractive now worth nearly $74. Oddly though, MHS has only traded up to around $65 most of the day. The nearly $9 gap suggests the market is concerned about the deal not completing. Anti-trust issues could pop up as the combined company will be a nearly $60B behemoth in the pharmacy benefits sector.  Interestingly though ESRX shareholders are excited enough about the deal to send their shares much higher. Maybe investors just aren't that good with math and are missing the share rise of ESRX and subsequent increase in the value to MHS shares in the deal. The combined company is promising to lead the effort to lower costs of prescription ...

Medco Health Solutions (MHS) is a leading pharmacy benefit management provider and a recent addition to the Net Payout Yields Portfolio (available from Covestor.com soon). How could an investor have predicted strong earnings and the incredible recovery in the stock of MHS from a low of below $44 at the end of August to the $57 current price in 2 months? Well, actually rather easily because MHS spent Q1 and Q2 buying some 8% of their outstanding stock. Management signaled that the stock was too cheap in the mid $50 range so why were investors so reluctant to buy in the $40s. Good question to us. During the last quarter they bought another 4% of the outstanding stock placing the Net Payout Yield at 12.7% based on current stock price. Or a nearly 17% annualized run rate since this total only factors in the last 3 quarters. During Q3, MHS bought back $903M or 17.1M shares of stock. The unfortunate news is that it appears management was unable to purchase shares in the $40s when th...