This Pharmacy Benefit Manager Will Benefit Investors

Shares of CVS Caremark (NYSE: CVS  ) have experienced a rising trend on the stock market since August 2013, up from around $33 per share to more than $66.70 per share at the time of writing. In order to drive future growth and profitability, CVS Caremark has agreed to acquired Coram, a specialty infusion services and enteral nutrition business unit of Apria Healthcare for around $2.1 billion. Is CVS Caremark a good buy now? Let's take a closer look.

Enhancing the infusion business capabilities
CVS is the second largest U.S. drugstore chain and pharmacy benefit manager (PBM) business. Coram is one of the biggest providers of comprehensive infusion services to more than 20,000 patients each month, operating more than 85 locations including 65 ambulatory infusion sites. The acquisition could expand CVS's competitive offering in Coram's specialty area and enable the company to streamline care management for patients. According to CVS' filing, Coram could generate around $1.4 billion in revenue in the first twelve months after the deal is closed. The deal will not have a material financial impact until 2015, when the transaction will add around $0.03-$0.05 to the company's adjusted EPS.

This acquisition will place CVS in a better position relative to its competitors, including Walgreen (NASDAQ: WBA  ) . Walgreen also expanded its business into infusion when it bought Option Care, one of the largest infusion players, for around $850 million in 2007. This acquisition helped both patients and insurance providers access Walgreen's specialty pharmacy and home infusion services.  In 2010, Walgreen also entered into a deal with Omnicare to swap assets; this gave Omnicare a long-term care pharmacy business in exchange for its home infusion business. 

A long-term agreement to source generic drugs
In order to drive growth and profitability in the future, CVS recently announced plans to enter into a 10-year agreement with Cardinal Health (NYSE: CAH  ) to establish the largest generic sourcing entity in the United States. CVS and Cardinal Health will form a 50/50 joint venture, contributing their supply chains and sourcing capabilities to source and negotiate generic supply contracts for both companies. Under the agreement, around $25 million in quarterly payments will be made by Cardinal to CVS for the contract's life, with the estimated after-tax value to CVS being around $435 million. With this agreement, CVS could not only save future costs but also have incremental cash flows for the next 10 years. 

According to Ross Muken, ISI Group analyst, the deal could potentially increase Cardinal's EPS by $0.25-$0.30 and add $0.18-$0.20 to CVS Caremark's EPS. Cardinal's Chairman and CEO George Barrett felt bullish about the agreement, saying that it could potentially benefit customers through the enhanced volume and sourcing capabilities that it presented.

My Foolish take
With the acquisition of Coram, CVS could significantly enhance its leadership position in the specialty infusion business to better compete with Walgreen. Moreover, the recent 10-year agreement with Cardinal Health could significantly reduce sourcing and supply chain costs, increasing the company's future bottom line. I personally think that these two strategic moves could improve CVS's operating performance in the future.

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