CVS Health Corp. has looked to buy the health insurance company Aetna Inc. in the past year. The merge would be one of the biggest health-care mergers in the past few years. Although the immediate benefits are relatively modest, the profit improvements were expected to reach low-to-mid digits in the next year. The chief executive of CVS, Merlo, has revealed “This transaction is really about growth, it is about expansion, it is not about contraction” as competitor incorporation Amazon.com has shown interest in buying and selling in the health sector.
In fact, Aetna, Inc. has experienced upward revisions and its continued investments has strengthened its position throughout the health insurance sector. These revisions can also be traced back to their focus on the consumer. The deal between the two companies would help CVS expand in many of their services such as vision care, nutrition advice, and allowing basic care to become less costly and more convenient for their customers. These factors are expected to drive further performance while low medical cost ratios and higher premium revenues have upped the company’s earnings guidance for 2017. More specifically, Aetna predicted their earnings to be between $9.45 and $9.55 per share, thereby an increase from the previous $8.80 to $8.90. This earnings guidance has increased confidence throughout the public in CVS’s ability to handle uncertain regulations.
The company’s earnings per share have also grown, excluding 2012, from Aetna’s expense and share buybacks which shows investors their positive growth and great management. Cost control for the health insurance has improved and proves their commitment to a disciplined focus on management of costs and encouraging productivity. Along with their growth in earnings per share and greater cost control, the company has also experienced a strong ROE. This supports its growth potential and proves to be larger than the industry’s overall ROE of 19%.
The merge between the healthcare companies looks attractive to the stock buyer as the company is trading at a lower P/E ratio than its industry. These improvements in numbers and stock information, along with each company’s initiative to combine efforts, show the stock buyer the potential for successful investment. Even with the obstacles the merge has faced, executive Mark Bertonlini promises “We are obviously going to get some scrutiny. We are prepared to deal with whatever comes along to make this work” as Trump administration regulators have not yet signed off on the deal and request further information.