CVS-Aetna merger promises a new dawn for healthcare sector

The healthcare sector this week witnessed the coming together of two leading players, under a merger deal that stands out for multiple reasons. The combination of CVS Health (CVS) and Aetna (AET) is considered as the beginning of a new era for the healthcare industry, for the unique data-driven model that offers customized personal care as per the convenience of individual patients.

It is estimated that the new healthcare giant has the potential to create significant shareholder value, especially through long-term cost savings and the introduction of a value-added rewards program that is the first of its kind in the industry.

Meanwhile, the merger has infused fresh vigor into Aetna’s stock, lifting it to an all-time high mid-week. CVS stock is currently in the recovery mode, after hitting a multi-year low a few months ago. The stock, which gained about 7% over the past twelve months, opened Thursday’s trading session higher.

It is estimated that the new healthcare giant has the potential to create significant shareholder value, especially through long-term cost savings

What makes the $70-billion transaction unique is the combination of two different business types – pharmaceuticals retail and health insurance. However, customers will have to wait for some time before being able to access all the services under one roof as CVS will start testing it only next year.

Once the integration is over, the combined entity will set a new paradigm for the sector by enhancing accessibility and making healthcare more affordable. In a decision that could benefit both customers and shareholders, the CVS management has vowed not to increase the insurance premiums of Aetna clients for now.

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Over the past three months, CVS has managed to sustain the consensus buy rating from top analysts, promising a risk-free investment option. The positive financial performance in the recent quarters and expected synergies from the merger justifies the high price target for the stock.

Going forward, Aetna’s policyholders will constitute an important share of CVS stores’ clientele.  The overall patient care program will also get a boost from the company’s initiative to use the excess store space for medical services.

Meanwhile, experts believe the integration of Aetna, which operates in a different segment, could be a challenging task for CVS. Considering the scale of operation, the company will also have to deal with competitive pressures and regulatory uncertainties.

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