CVS/Coram Infusion Deal Is a Good Prescription for Investors

The CVS Caremark  (NYSE: CVS  ) acquisition of Coram Specialty Infusion Services is a good deal for investors. The leading retail-pharmacy outfit recently announced an agreement to acquire Coram from Apria Healthcare Group

The CVS/Coram deal at a glance
According to the announcement, the Coram unit of Apria offers specialty infusion therapies and nutrition services to more than 20,000 patients each month. The acquisition will cost CVS about $2.1 billion, which the company believes will boost earnings in the long term.

CVS' pharmacy services president, Jon Roberts, said, "Bringing together CVS Caremark's unique range of specialty pharmacy services with Coram's infusion capabilities will expand our competitive offerings in the specialty arena."

Coram presently cares for patients mostly through home infusion. Infused therapies are designed for treating acute and chronic conditions like immune deficiencies, rheumatoid arthritis, multiple sclerosis, and nutritional deficiencies. These therapies can be provided in hospitals and doctors' offices as well as in patients' homes.

This acquisition dovetails with CVS' expansion of mini-clinics at its retail outlets. Moreover, the company's business model of specialty pharmacy services brings a wide array of medicinal therapies and services to consumers. These services along with the retail pharmacy's dominance in generic-drug sales led the pharmacy chain to a solid third quarter.

CVS previously reported third-quarter earnings that rose 25% on solid revenue growth in its pharmacy-services business. Net revenue increased $1.4 billion, or 7.8%, to $19.5 billion for the three-month period ending Sept. 30. Finally, the drugstore operator raised its per-share earnings estimate for the year from $3.94 to $3.97.

Walgreen offers more comprehensive clinics
CVS' key competitor in the retail pharmacy sector is Walgreen (NYSE: WAG  ) . The retail chain operates the largest network of drugstores in the U.S. while offering an array of consumer goods, pharmacy, and health and wellness services.

Walgreen also has the lead in mini-clinic services and plans to expand its "Take Care" clinics at other retail outlets. These clinics offer more comprehensive health care services than those presently available at CVS. Furthermore, Walgreen intends to add to their clinical services by providing on-site treatment for asthma, diabetes and high cholesterol.

Both CVS and Walgreen are branching out into mini-clinic services partly due to changes in health care delivery that may occur because of the Affordable Care Act. Some health care analysts contend that Obamacare will cause a physician shortage in primary care.

If they are correct, then this will ramp up demand for clinical services in general as well as those provided by the retail pharmacies. So the acquisition by CVS is not only aimed at taking advantage of these changes but also at competing more effectively with Walgreen

While CVS is the leader in prescription sales, Walgreen is also strong in a number of areas including climbing net income, steady cash flows, and a sound financial position overall. Moreover, Walgreen has a history of solid share price performance and continued growth in earnings per share. In its most recent quarterly report, the company announced that sales were up by about 3.8% to just under $6 billion. 

The bottom line
The acquisition of Coram will boost CVS' specialty pharmacy offerings. In the long run the deal is another step in a long-term strategy of investing in business lines that will enhance growth. In this regard, the retail pharmacy chain says the agreement will generate about $1.4 billion in revenue during the first 12 months. The company also expects to add $0.03 to $0.05 to its adjusted EPS in 2015.

Whether these earnings expectations will be met remains to be seen. But the acquisition of Coram will boost the retail chain's specialty pharmacy offerings. It will also put CVS in a position to capitalize on ACA-related changes to health care delivery while allowing the company to compete more effectively with Walgreen's in-house clinical services.

Going forward, the Coram transaction will leave CVS well positioned for long-term revenue and earnings growth. In the final analysis, CVS has a good track record of executing its acquisition model, and this deal is another that is a good prescription for investors with a long-term view.

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