The company also forecast earnings per share growth of 15 percent to 20 percent next year.

"Another impressive set of quarterly results from Medco affirms our view that PBMs are among the best-positioned groups within our coverage universe to flourish in a weak U.S. economy," Morgan Stanley analyst David Veal said in a research note.

Net income rose to $295.7 million, or 58 cents per share, from $214.7 million, or 39 cents per share, a year earlier.

Excluding items, earnings were 63 cents per share, beating Wall Street estimates by 1 cent, according to Reuters Estimates.

The Franklin Lakes, New Jersey-based company also said its board approved a plan to repurchase up to $3 billion in shares through November 2010.

Pharmacy benefit managers (PBMs) administer prescription drug benefits for employers and health plans and operate large mail-order pharmacies.

Medco says it derives more than half its profit from delivering generic drugs by mail. Like other PBMs, it can take advantage of low prices from generic manufacturers and capture more profit by dispensing the drugs itself.

President-elect Barack Obama is seen favoring increased use of generic drugs to temper prescription drug spending, which stands to help PBMs, according to Jefferies & Co analyst Arthur Henderson.

For the quarter, the company's adjusted volume of prescriptions handled rose 5.6 percent to 193 million. Its mail-order volume jumped 11.1 percent to 26.1 million.

Medco's rate of dispensing generic drugs increased 4.1 percentage points to 64.4 percent.

"We have seen clients and consumers alike choosing the cost-saving benefits of mail-order and generics in these difficult economic times," Medco CEO David Snow said in a statement.

Medco affirmed its 2008 forecast. It also forecast 2009 earnings per share, excluding items, at $2.67 to $2.77, or growth of 15 percent to 20 percent. Analysts expect $2.73.

Through Tuesday, shares of Medco have fallen 26 percent this year, better than a 31.5 percent drop for the Standard & Poor's 500 index <.SPX>.

(Reporting by Lewis Krauskopf; Editing by Gerald E. McCormick, Dave Zimmerman)