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CVS Health Banks on Aetna Prospects, Omnicare May Disappoint

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On Jul 5, we issued an updated research report on CVS Health (CVS - Free Report) . Increasing demand for Pharmacy Benefit Management (PBM) and specialty pharmacy has been a major growth driver for the stock. The company currently carries a Zacks Rank #3 (Hold).

CVS Health is demonstrating robust top-line growth driven by strong performance of the Pharmacy Services segment,, which is benefiting from an upside in specialty services. Although the company is witnessing certain challenges related to 2020 PBM selling season, the long-term prospects look bright.

The company’s retention rate currently stands in the mid-90%, excluding the impact of the acquisition of Centene..Adjusted claims increased 2.8% from the year-ago quarter, driven by net new business wins and continued adoption of maintenance choice. According to CVS Health, service levels and performance metrics are currently at historically high levels and the company expects to return to its historical retention levels going ahead.

This apart, synergies from Aetna appear promising. Following the acquisition, CVS Health introduced a new segment, Health Care Benefits, which holds immense promise. The company views 2019 as a year of transition and expects its businesses to strengthen meaningfully from the integration of CVS and Aetna's core capabilities. According to CVS Health, the integration of capabilities will benefit Aetna and Caremark clients and their members. The company is on track to have this in market for the 2021 selling season.

On the flip side, the 2020 PBM selling season so far has been dull with lower-than-expected retention rate. CVS Health expects to see fewer RFP (Requests for Proposals) opportunities in the market than what it has seen over the past few years.

Also, according to CVS Health, Omnicare business performance is likely to remain soft through 2019. In the first quarter, persistent reimbursement pressure and the impact of recent generic introductions impacted the company’s retail LTC business.

Over the past month, CVS Health has underperformed its industry. The stock has gained 3.8% compared with 4.9% rise of the industry.

Stocks to Consider

Some better-ranked stocks in the broader medical space are Teleflex Inc. (TFX - Free Report) , Penumbra (PEN - Free Report) and Bruker Corporation (BRKR - Free Report) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Teleflex’s long-term earnings growth rate is expected to be 13.7%.

Penumbra’s long-term earnings growth rate is projected to be 21.5%.

Bruker’s long-term earnings growth rate is estimated at 11.7%.

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