Cardinal Health, Inc. (CAH): Bulking Up In The Right Places

Cardinal has demographics on its side, however. A study recently published in JAMA Internal Medicine comparing the health of the baby boomers to the health of their parents clearly demonstrates the possibilities. Basically, baby boomers are sicker then their parents were at this point in their lives. They have more chronic illness and disability, and are more likely to be on medications to treat those illnesses than their parents. Moreover, boomers tend to have sedentary lifestyles and are more often overweight (which can quickly lead to diabetes) than their parents. In addition to being overweight, high blood pressure and high cholesterol are two frequent problems.

Thus, the baby boomers, who are entering retirement, are likely to need more medical care than their parents. As it stands, this demographic is getting closer and closer to its peak medical care needs. Add in the shear size of the boomers and demand for medical care is likely to expand materially. That’s a big opportunity.

A Well Positioned Merger

Cardinal’s proposed deal to buy AssuraMed is a good move. For starters, the company’s $1 billion in revenues will help support Cardinal’s already stressed top line. However, that isn’t the real benefit of the deal.

CEO George Barrett summed up to potential of the deal: “The acquisition of this industry leader allows us to serve the growing number of Americans treated in home settings — particularly those patients recovering from acute episodes and those suffering with chronic diseases. This is a platform opportunity for Cardinal Health products and services which will be increasingly important as the delivery of care migrates to more cost-effective settings.”

Essentially, the baby boomers are far more likely than their parents to be impacted by the types of illnesses that can be treated in a patient’s home. Adding AssuraMed gives Cardinal a solid position to service these needs. And it should be a large need, based on the increased incidence of illness in the baby boomers and their shear numbers.

The Market Liked it

Normally in a merger, the acquiring company’s shares go down. That didn’t happen. Cardinal’s shares moved up. Clearly the market likes the potential of this transaction. And it should. This could be the basis of an important diversification effort for Cardinal.

The article Bulking Up In The Right Places originally appeared on Fool.com.

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