- The move is seen as defense against Amazon's potential entry to the pharmacy space.
- RBC Capital Markets said Tuesday the deal is more than just defense and could benefit both companies as well as their shareholders.
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RBC: CVS’ Aetna deal is more than just a defense against Amazon (CVS, AET)
CVS wants to buy the insurance giant in order to fend off Amazon — but there could be other benefits.
Pharmacy giant CVS Health’s proposed $66 billion buyout of health insurer Aetna could be finalized “by the end of November,” the Wall Street Journal
In the roughly three weeks since the merger was first reported, the deal was largely seen as a way for CVS to fend off Amazon’s potential foray into the pharmacy business. Analysts at RBC Capital Markets, however, think the move could have benefits beyond defending against the giant online retailer.
"Investors should view this deal as an offensive move by both companies,” analyst George Hill said in a note Tuesday. "U.S. healthcare costs approach 20% of GDP, and continue to grow at a rate that exceeds the CPI, serving as a drag on most other industries. Also, with about 90% beneficiary coverage in the U.S., we continue to expect coverage gains to skew towards lower margin government pay books of business while cost pressures drive erosion of commercial benefit coverage."
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"From that perspective, a vertically-integrated, consumer-centric value-based care model makes strong strategic sense and is not a short-sighted response to fears of Amazon entering the pharmacy space," Hill said.
The bank maintains its outperform rating for shares of CVS, with a price target of $95 — about 33% higher than the stock’s opening price Tuesday of $70.65. Wall Street's consensus target for CVS is $83, according to Bloomberg data.
Still, there are plenty of unknowns surrounding the deal, with any new clarification coming at an investor event scheduled for December 12.
“The only way this deal can get done is if both management teams are focused on a transaction structure that is value creating for AET and CVS shareholders as opposed to a value exploitative deal to the benefit of AET," according to RBC. "In our opinion, the news today is another data point in support of the willingness of the management teams on both sides to do this deal."
CVS stock is up roughly 1.08% in trading Tuesday morning and down 11.57% so far this year.
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