Summary
- In 2018 CVS purchases Aetna for $78 Billion.
- I previously analyzed the S-4 put out by CVS to see what a combined company would look like.
- The results in the first full year of a combined company were better than expected.
- A good Q1 and lower valuation are good for an investment.
Introduction
CVS Health Corp. (CVS) is one of the largest integrated healthcare companies in the world. On November 28th, 2018 CVS acquired health insurance company Aetna for $78 Billion creating a company with 9,900 retail locations, 1,100 walk-in medical clinics, a PBM with 105 million member, and 37 million customers of insurance products. With all this CVS Health is trying to offer "total health" by making health care more affordable, accessible, simple, and seamless. Two years ago I published an article exploring the combined company's financials presented in the S-4. In 2019 CVS Health has mostly completed the merger of each business which this article will explore.
Source: CNN
Financials: 10-K Vs. S-4
Everything from the S-4 posted in 2018 is almost spot on to what was posted in fiscal year of 2019. Revenues as projected in the S-4 were $232.722 Billion while the actual results came in at $256.776 Billion, a difference of over 10%. The difference is mostly due to growth within each business since then. As for net income $5.497 Billion was projected in 2018 while in 2019 $6.634 Billion was the actual posted, a slightly better profit margin than projected at 2.58% compared to 2.36%. This slightly higher profit margin is attributable to a higher operating margin of 10 basis points from 9.43% to the actual of 9.53%. With over $500 Million in synergies reportedly created in 2019 and $800-900 Million targeted for 2020 it will be interesting to see the margins once all acquisition costs are realized. On top of this interest expense was not as high as expected coming in at $3.035 Billion compared to $3.463 Billion in the S-4. With so much debt taken on for the acquisition of Aetna it is good to see interest expense come in lower than expected.
