Mergers and acquisitions are not showing any sign of cooling, particularly in the health care space. The U.S. retail pharmacy corner of the broad health care space also joined this frenzy as the leading U.S. drug retailer CVS Health (CVS) entered into a deal to acquire nursing-home pharmacy Omnicare (OCR) for $12.7 billion, including $2.3 billion in debt.   

Under the terms of the deal, CVS will pay $98 per share in cash to Omnicare, a 6.1% premium to its closing price as of May 20.

The acquisition will significantly expand CVS Health’s ability to dispense prescriptions in assisted living and long-term care facilities, serving the senior patient population as well as bolster its position in the rapidly growing specialty pharmacy business. The demand for pharmacy services is rising rapidly. And with the rise in the aging population, more people will avail of assisted living facilities in the coming decade, creating huge opportunity in this industry (read: 4 Top-Ranked Health Care ETFs for a Healthy Portfolio).

Though this is the first deal in the retail drug store channel, the possible combination is the latest of a string of acquisitions between pharmacy-benefit managers following the $12.8 billion takeover of Catamaran Corp (CTRX) by U.S. health insurer UnitedHealth Group (UNH).

The acquisition, expected to be completed by the end of 2015, has already been approved by the board of directors of both companies and is seeking approvals from shareholders and regulators. The transaction will be earnings accretive by 20 cents per share in 2016.

The stock market greeted the takeover of Omnicare by CVS with enthusiasm, pushing not only shares of CVS and OCR higher but also spreading bullishness into the entire consumer sector. OCR jumped to a new record high of $96.54, having gained 2% on the day and lowered its average volume, as around 29.9 million shares moved hands compared to just 1.7 million on average. Meanwhile, CVS shares rose as much as 3.6% on elevated volumes.

ETFs in Focus

The smooth trading will also continue in the ETF world with consumer funds getting a boost. Below, we have highlighted three consumer ETFs having the largest allocation to this retail drug store chain that could be great plays for investors seeking to tap the potential upside resulting from the deal.

Market Vectors Retail ETF (RTH)

This fund tracks the Market Vectors US Listed Retail 25 Index and holds about 26 stocks in its basket with AUM of $355.2 million. Average daily volume is good at around 98,000 shares the while expense ratio came in at 0.35% (read: Retail ETFs in Focus Ahead of Big-Box Earnings).

In terms of holdings, CVS Health is the fourth firm making up for 7.4% of assets while sector wise, specialty retail takes the largest share with less than one-third, followed by double-digit allocation to hypermarkets, drug stores, departmental stores and health care services. The fund is up 6.8% so far this year and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook.

Consumer Staples Select Sector SPDR Fund (XLP)

The most popular consumer ETF, XLP follows the S&P Consumer Staples Select Sector Index, and has amassed about $7.7 billion in its asset base. The fund charges 15 bps in fees per year from investors and trades in heavy volume of around 7.3 million shares a day. In total, the fund holds about 40 securities in its basket, with CVS Health taking the fifth spot at 6.5%.

From a sector look, food and staples retailing takes the top spot at 25.8%, with beverages, household products, food products and tobacco accounting for double-digit allocation each. XLP has gained 2.4% in the year-to-date timeframe and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium Low risk outlook.

Vanguard Consumer Staples ETF (VDC)

This fund manages over $2.5 billion asset base and provides exposure to a basket of 97 consumer stocks by tracking the MSCI US Investable Market Consumer Staples 25/50 Index. The product charges a low fee of 12 bps per year from investors and trades in good volume of around 125,000 shares (see: all Consumer Staples ETFs here).

Here, CVS occupies the sixth position in the basket with 5.4% allocation. The product is widely spread across household products, packaged foods & meat, soft drinks, and tobacco that make up for double-digit allocation each. The fund has added about 2.6% so far in the year and has a Zacks ETF Rank of 3 with a Medium risk outlook.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
CVS HEALTH CORP (CVS): Free Stock Analysis Report
 
OMNICARE INC (OCR): Free Stock Analysis Report
 
MKT VEC-RETAIL (RTH): ETF Research Reports
 
SPDR-CONS STPL (XLP): ETF Research Reports
 
VIPERS-CONS STA (VDC): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report