The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
Today’s announcement from CVS of the $10.1 billion purchase of OCR-US represents an interesting and somewhat rarity in the markets of late. That is, a firm which chooses to purchase another company and sees positive momentum with its share price. The trend shows that investors have been behind the firm all the way and with recent moves to rebrand the firm, it is clear that the markets are buying into the concept.
The recent decision to end cigarette sales within the largest commercial pharmacy firm in America could have been a bitter pill to swallow for shareholders, given that investors largely care more about profitability than ethical concerns. However, this was part of a realignment towards health and the name conversion from CVS Pharmacies to CVS Health further proves that point.
For those of us who have had the privilege to live in the US and have been unfortunate enough to require health products from CVS, it is immediately clear that the valuations attached to largely similar products from home can be substantially higher.
In the US health is a business and a very profitable one at that, particularly for those later in life who by and large are likely to require a higher range and frequency of treatments. With that in mind, the purchase of Omnicare Inc makes complete sense given its position as the number one provider of pharmacy services to the elderly.
The 3.12% rise in the stock so far today shows that investors are on board and from a technical standpoint it is clear that this has been the case for some time now.
The consistency of bullish momentum throughout the past six and a half years has been astounding, rising 333% over a timeframe which has seen the S&P500 rise 220%. That means the overall market has managed a third less growth than we have seen in CVS. Given the clarity of this trend, the signs are clearly bullish and despite the recent period of consolidation which has seen a flag pattern formed, the break higher last week has provided a clear resumption of the bullish trend.
As such, I expect to see the share price of CVS Health return to $105.46 in the near future and another round of healthy gains seem just around the corner.