Information of CVS Well being CVS probably buying Oak Avenue Well being OSH for $10 billion broke this week and highlighted what might be one other profitable acquisition in 2023. For Oak Avenue Well being, the potential of a $10 billion buyout would see shares valued at round $40 and 33% above present ranges of $30 a share.
Persevering with to develop its attain into main healthcare, let’s see if it’s time to purchase CVS inventory or shares of its potential acquisition goal Oak Avenue Well being.
Wall Avenue Believes the Acquisition makes Strategic Sense
After buying medical health insurance large Aetna in 2018, CVS is strategically rising its footprint in main healthcare. Extra not too long ago, CVS introduced the $8 billion acquisition of Signify Well being SGFY which is predicted to be accomplished within the first half of 2023.
With many Medicare-Benefit plans supporting members with evaluations by Signify Well being’s licensed clinicians, buying Oak Avenue Well being would proceed CVS’s growth with their main care facilities for adults on Medicare.
Oak Avenue Well being operates over 100 main care facilities within the U.S. and Signify Well being’s platform and superior analytics would help the mixture of CVS’s rising healthcare spectrum.
Development & Outlook
By way of income development, the potential of CVS buying Oak Avenue additionally is smart as OSH gross sales are anticipated to climb 50% for its present fiscal 2022 and bounce one other 42% in FY23 to $3.06 billion. Fiscal 2023 can be a 456% enhance from pre-pandemic ranges with gross sales at $557 million in 2019.
Picture Supply: Zacks Funding Analysis
After being based in 2012, this high line development is spectacular and is way wanted as the corporate adjusts to working prices and remains to be under the profitability line. Oak Avenue earnings are actually anticipated to be -$2.26 per share for 2022 however see a smaller adjusted lack of -$1.60 a share in FY23. Even higher, earnings estimates have continued to pattern larger over the past 60 days.
Pivoting to CVS, gross sales are forecasted to rise 7% for fiscal 2022 and rise 3% in FY23 to $321.87 billion. Fiscal 2023 would symbolize 25% development from pre-pandemic ranges with 2019 gross sales at $256.77 billion. On the underside line, CVS earnings are actually anticipated to be up 2% for FY22 and rise one other 2% in FY23 at $8.83 per share. Earnings estimates have trended larger for FY22 however are down for FY23.
Picture Supply: Zacks Funding Analysis
Current Efficiency & Valuation
On Tuesday, Oak Avenue Well being shares skyrocketed +27% on information of the potential acquisition whereas shares of CVS fell -1%. Within the final yr, OSH is now up +36% largely attributed to this week’s spike which simply tops CVS’s -15% and the S&P 500’s -16%. Nevertheless, over the past 5 years, CVS remains to be up +14% to beat OSH’s -25% with each underperforming the benchmark.
Picture Supply: Zacks Funding Analysis
Buying and selling round $90 a share CVS trades at simply 10.1X ahead earnings. That is above its trade common of 8.1X however 53% under its decade excessive of 21.8X and a 20% low cost to the median of 12.6X.
Whereas the standard P/E valuation can’t be used for Oak Avenue Well being as it’s nonetheless on the trail to portability having a look on the firm’s value to gross sales in recent times is helpful. On this regard, we will see that OSH inventory trades at 3.5X P/S which is closing in on the optimum stage of lower than 2X.
Picture Supply: Zacks Funding Analysis
Even higher, OSH inventory now trades properly under its two-year excessive of 16.1X gross sales and properly beneath the median of 4X. As compared, CVS is under the optimum stage at 0.3X and barely under its excessive of 0.5X and the median of 0.4X throughout this era.
Take Away
Within the quick time period, the doable acquisition by CVS may result in extra momentum in Oak Avenue Well being’s inventory if there’s some validity to a possible deal that values the comapny at $10 billion and roughly $40 a share. That is on high of earnings estimates revisions trending larger to land OSH a Zacks Rank #2 (Purchase) for the time being, alongside its stellar top-line development.
As for CVS, the inventory is beginning to look enticing close to its 52-week lows with the corporate anticipated to maintain high and bottom-line development along with its enticing valuation. For now, CVS lands a Zacks Rank #3 (Maintain) and may profit long run if it had been to amass Oak Avenue Well being, particularly by way of added income and growth into main healthcare.
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CVS Health Corporation (CVS) : Free Stock Analysis Report
Oak Street Health, Inc. (OSH) : Free Stock Analysis Report
Signify Health, Inc. (SGFY) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.