Goldman Sachs downgraded Medco Health Solutions to neutral from buy on valuation and said anticipation over a potential captive pharmacy benefit manager (PBM) acquisition has been adding support to the company's shares.

But given the size of potential opportunities any upside would likely be modest, in our view, said the brokerage, which has a six-month price target of $56 on the stock.

Goldman said Medco would be most interested in an acquisition of either Aetna Inc's or Cigna Corp's PBM businesses, having missed out on acquiring Wellpoint's NextRx.

In April, Express Scripts Inc agreed to buy health insurer WellPoint Inc's NextRx prescription business for $4.68 billion, becoming the No. 2 U.S. pharmacy benefit manager while gaining more leverage in driving down drug prices.

Goldman Sachs reinstated Express Scripts with a buy rating and WellPoint with neutral, saying the NextRx deal could bring the pharmacy benefit manager greater synergies than anticipated.

On WellPoint, the brokerage said a key near-term positive for the company was a very strong free cash profile, which was offset by its high sector-relative exposure to impact from health reform.

Goldman set a six-month price target of $90 on Express Script stock and a price target of $52 on WellPoint. (Reporting by Shailesh Kuber in Bangalore; Editing by Aradhana Aravindan)

Investment Goldman sachs