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CVS Health's Aetna Deal Imminent, PBM Selling Season Strong

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On Oct 4, we issued an updated research report on CVS Health (CVS - Free Report) . While increasing demand for PBM (Pharmacy Benefit Management) and specialty pharmacy was a major growth driver for the stock, its dull retail performance over the last few quarters seems to have disappointed investors. The company carries a Zacks Rank #2 (Buy).

Shares of the company have outperformed the industry in the past three months. The stock has rallied 16.3% in comparison to the 12.9% rise of the industry.

Over the recent past, CVS Health consistently reported a year-over-year improvement in the top line, driven by a strong Pharmacy Services segment, benefiting from an upside in the specialty services. Also, year-over-year Retail/LTC comparisons are encouraging.

A strong 2019 PBM selling season is another positive. On last reported quarter’s earnings call, the company stated that it completed more than 70% of its client renewals, roughly in line with the previous year’s count. The retention rate is currently higher than the rates witnessed over the past few years.

The company is currently moving toward the Aetna deal closure. Per CVS Health, this landmark acquisition of Aetna might change the entire Healthcare landscape in the United States. Investors are hopeful about CVS Health earning $750 million as near-term synergies from the transaction post culmination.

Despite a tough pricing pressure, CVS Health currently gains momentum through high levels of service and execution, competitive pricing and a unique integrated model. This in turn, allows the company to provide differentiated products and services generating savings, better health outcomes as well as convenience.

On the flip side, the company’s highly competitive retail pharmacy business is a big concern as it faces some stiff rivalry in the pharmacy segment. This is because availability of low-cost pharmacy options and other retail businesses continue to add pharmacy departments to the company’s portfolio. Particularly, discount retailers have made substantial inroads in gaining a major market share.

Other Key Picks

Some other top-ranked stocks in the broader medical space are Intuitive Surgical (ISRG - Free Report) , Amedisys, Inc. (AMED - Free Report) and Masimo Corporation (MASI - Free Report) .

Intuitive Surgical’s expected long-term earnings growth rate is 14.7%. The stock currently carries a Zacks Rank of 2.

Amedisys’ estimated long-term earnings growth rate is 19.4%. The stock is a #2 Ranked player at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Masimo’s long-term earnings growth rate is projected at 14.8%. The stock is currently a Zacks #2 Ranked player.

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