Market Outlook
With the recent proposed purchase of Aetna (NYSE:AET), CVS (NYSE:CVS) has positioned itself as the only player in the market with such a significant market share in both the pharmacy and healthcare insurance markets. It seems highly likely the deal will close given neither of these companies control too much of their respective industries to worry about anti-trust issues. In light of this, CVS has detailed some very high-level plans for integration. A team has been developed with execs from both companies to help accomplish 1) $750mm worth of synergy savings in two years and 2) “to create the long-term roadmap for success in growth.” The latter is rather ambiguous, but I agree all the same that the marriage of CVS and Aetna can deliver long-term returns for investors who are willing hold this stock for a few years.
Demand for health care is only going to increase. With increasing drug costs and an aging American population, CVS will have a steadily growing market in years to come. CEO Larry Merlo cited in an investor relations call that 10,000 baby boomers turn retirement age every day. That creates an irreversible stream of participants coming to market and by combining the two companies, it offers a holistic treatment to each customer that also captures revenue at each point in the process.
