CVS Health’s bid to acquire health insurer Aetna is actually a “genuinely smart” way of staving off competition via Amazon.com, according to one Wall Street analyst.
Needham upgraded shares of CVS to a buy rating in addition to bumped its cost target on the retail pharmacy, praising the company’s proactive actions as competition via e-commerce giant Amazon looms.
“The next month may shape the outlook in addition to direction for CVS for the next 10 years,” wrote Needham analyst Kevin Caliendo in a note to clients. “Even from the face of an impending competitive entry in pharmacy by Amazon, we find the risk-reward on the stock favorable, especially if CVS is actually able to consummate the reported merger with Aetna.”
The analyst increased his cost target on the company to $79, which represents 14 percent upside via Thursday’s close. Caliendo believes a brand-new CVS-Aetna could “easily” grow earnings 10 percent annually down the road, given no hiccups in pharmacy benefit management during integration or lost share to Amazon.
The reported $66 billion deal between CVS in addition to Aetna would likely be the largest in health insurance history. The move is actually viewed by many on the Street as a strategic play to bolster the defenses of both companies against a potential move by Amazon into the industry.
The $544 billion e-commerce giant Amazon has been quietly exploring ways to expand into the pharmaceutical industry. Jeff Bezos’ company has also contributed to the struggles of traditional brick-in addition to-mortar retailers like CVS.
CVS announced This specific month in which the item plans to bring prescriptions “right to customers’ doors” with next-day delivery starting in 2018, akin to Amazon’s competitive shipping method for Prime members.
The company also announced late last month in which the item would likely be partnering with Walgreens Boots Alliance in starting the 30,000-store network in an attempt to reduce costs both for the company in addition to for pharmacy benefit management (PBM) members.
“We do think CVS announcing its agreement with Walgreens to create a 30,000 store national network with 10,000 to be named independent pharmacies is actually a direct land-share grab to limit Amazon’s potential partnering options,” added Caliendo.
“in addition to the more recent announcement in which CVS will provide next day fulfillment to individuals is actually clearly a service in which would likely compete with Amazon.”