Spun off from McKesson (MCK) in 2020, Change Healthcare (CHNG) is the leading independent provider of health care IT services, suggests John Buckingham, a value-focused money manager and editor of The Prudent Speculator.

The company offers software and analytics solutions in support of provider network management, payments and other administrative healthcare functions that aim to enhance clinical decision-making and improve quality of care.

A year ago, Change announced that it would combine with Optum, a tech-focused division of UnitedHealth (UNH), in a transaction whereby CHNG holders would receive $25.75 per share in cash.

Facing an intense lobby from the American Hospital Association (AHA), parties to the deal have delayed the transaction more than once, most recently pushing the deadline to April 5, 2022, and promising the Department of Justice no deal would happen before February 22nd.

We continue to think the antitrust risks are appropriately discounted, given a greater than 20% spread between the market and merger prices, while fiscal 2022 and 2023 consensus EPS estimates yield inexpensive respective forward P/E ratios of 14 and 13. Deal or no deal, we like CHNG.

A sizable short-term return is available if the union is consummated and a strong competitive position exists if not, with the AHA saying, “The types of services offered by OptumInsight and Change are a must have for health care providers to navigate byzantine insurance reimbursement and ensure accurate and timely payment.”

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A Look Back at 2021's Top Performers

John Buckingham offers an update on his Top Pick for 2021, healthcare and pharmacy stock CVS Health (CVS), which gained 49% over the year:

Shares of CVS Health closed out 2021 with a bang, thanks in large part to a favorable response to the health care giant’s Investor Day. Management bumped its 2021 EPS estimate to at least $8.00 and illustrated its plan to achieve double-digit EPS growth by 2024.

Although the competitive landscape isn’t getting any less challenging and there seemingly is always a regulatory cloud in the operational sky, we think there is plenty of runway ahead to improve access to care using CVS’s integrated health care delivery model.

We appreciate that scale benefits from the Aetna acquisition are starting to show through, with cost savings allowing the company to raise its quarterly dividend for the first time since 2017 to $0.55 per share. While shares had a great 2021 (up nearly 55% on a total-return basis) we continue to find them attractive, trading for just 13.3 times next 12-month adjusted earnings estimates and yielding 2.1% after a recent dividend increase.