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How the AT&T-Time Warner merger may boost shares of CVS and Express Scripts - MarketWatch

Express Scripts trades for a high-single-digit price-to-earnings multiple, which seems cheap given that it is the largest PBM. But deal approval now seems far more likely after the AT&T-Time Warner decision. The proposed CVS purchase of Aetna would put a large PBM into health insurance in a vertical merger, creating a company that could offer a “continuum of care.” This means it would offer everything from PBM services and pharmacies, to health insurance and mini-clinics in CVS stores, or “health-care hubs.” Theoretically, the company would bring savings to consumers, and it would be a cash-flow machine. Morningstar analyst Vishnu Lekraj puts a $99 “fair value” estimate on CVS, which he thinks has a desirable wide moat around its business. CVS recently traded for around $67.50. Like Express Scripts-Cigna, CVS-Aetna would benefit from the continued rise in pharmaceutical spending, given the aging of the population, and expansion of health-insurance coverage to the uninsured. CVS director David Dorman purchased a sizeable $2.1 million worth of stock in early May at around $62. This is a telling insider endorsement of the benefits from the proposed merger with Aetna. “The more capabilities you have in-house, the more ability you have to control the cost of health care, the more you can generate savings, and the more you can pass savings through to customers,” says McWey.

For the original version including any supplementary images or video, visit https://www.marketwatch.com/story/how-the-att-time-warner-merger-may-boost-shares-of-cvs-and-express-scripts-2018-06-13

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