NEW YORK (TheStreet) -- CVS Health (CVS - Get Report) shares are up 1.96% to $103.22 in early market trading on Thursday after the retailer announced the purchase of nursing home pharmacy Omnicare (OCR) in a $12.7 billion deal, furthering CVS' position as the largest U.S. prescription drug retailer.
The Woonsocket, RI-based company will pay $98 per share in cash, a 21% premium over the stock's closing price yesterday. Omnicare has about 13,000 employees at 60 locations across the country.
Omnicare had reportedly been a takeover target by multiple companies including Express Scripts Holdings (ESRX), the U.S. biggest pharmacy-benefits management company, last month, according to media reports.
"The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel. It also creates new opportunities for us to extend our high-quality, innovative pharmacy programs to a broader population of seniors and chronic care patients as they transition across the care continuum. We have been impressed by the Omnicare team and what they have created for the patients they serve," said CEO Larry Merlo.
TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio, today said that the purchase is a "Brilliant move by Larry Merlot to capture an unserved cohort-seniors!"
CVS identified long term care as a growth segment in the healthcare sector due to an aging U.S. population.
Both companies board of directors have approved the deal and the transaction is expected to close by the end of this year.
Omnicare shares are up 1.34% to $95.90 in early market trading today.
TheStreet Ratings team rates CVS HEALTH CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
"We rate CVS HEALTH CORP (CVS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. We feel its strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 0.3%. Since the same quarter one year prior, revenues rose by 11.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- CVS HEALTH CORP has improved earnings per share by 12.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CVS HEALTH CORP increased its bottom line by earning $3.96 versus $3.75 in the prior year. This year, the market expects an improvement in earnings ($5.17 versus $3.96).
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Food & Staples Retailing industry average. The net income increased by 8.1% when compared to the same quarter one year prior, going from $1,129.00 million to $1,221.00 million.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 34.15% over the past year, a rise that has exceeded that of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- The current debt-to-equity ratio, 0.35, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that CVS's debt-to-equity ratio is low, the quick ratio, which is currently 0.60, displays a potential problem in covering short-term cash needs.
- You can view the full analysis from the report here: CVS Ratings Report