Medco inks key deal with UnitedHealth; shares jump

NEW YORK (Reuters) - Medco Health Solutions Inc (MHS.N) said on Tuesday that it had obtained an extension of its contract to provide pharmacy benefit services to insurer UnitedHealth Group (UNH.N) through 2012, sending its shares up more than 7 percent.

The fate of the UnitedHealth contract had weighed on Medco shares as analysts estimated it amounted to about 20 percent of the company's revenue. Analysts said UnitedHealth was considering taking those pharmacy services in-house.

"We believe that this announcement is a significant positive for Medco as it removes the fear of losing a large chunk of its revenue," Deutsche Bank analyst Barbara Ryan said in a research note.

Jefferies & Co analyst Arthur Henderson raised his rating on Medco stock to "buy" from "hold" on news of the contract, saying: "Now that this overhang has been eliminated, we believe that, at current price levels, Medco is an extremely attractive investment."

Medco did not disclose terms or many details in a press release announcing the agreement.

"This agreement advances our relationship and includes new terms that provide clear alignment around serving UnitedHealth Group's integrated commercial medical and pharmacy business," Chief Executive David Snow said in a statement.

Medco shares rose 7.4 percent to $51.30 in trading before the market opened from Monday's close of $47.78 on the New York Stock Exchange.

(Reporting by Lewis Krauskopf; Editing by Steve Orlofsky and Lisa Von Ahn)