Wall Street Analysts are baffled by the pharmacy and drug store chain’s potential Aetna purchase.
CVS Health revealed its intentions to purchase nationwide insurance provider, Aetna. This would represent the company’s first steps into the health insurance industry. At the same time, it has Wall Street analysts puzzled over the decision.
This entry into health insurance within the current atmosphere has analysts completely confused.
Jeffries health care desk analyst, Jared Holz, called the CVS Health decision “insane.” Moreover, he also said that this move to acquire Aetna has arrived much earlier than anticipated.
“My view is [that there is] too much debt here and CVS winds up being levered nearly 5x to get this done,” said Holtz in a letter distributed to Jeffries clients. “The entire supply chain is a structural short until Amazon [is] proven to be [an] anemic player. Which won’t happen.”
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Should CVS Health purchase Aetna at the proposed $200 per share price, it would be a $66 billion acquisition.
That would easily represent the largest health insurance company purchase in the history of the industry, according to a Thomson Reuters data analysis. From the first news of the CVS intentions was revealed, that company’s stock price fell by 6 percent by the close of the week.
Several Wall Street analysts have voiced their opinion about the CVS decision to acquire Aetna health insurance. Many stated that this expensive move may be a direct response to the steps Amazon.com has been taking into the drug store chain’s traditional market space. The first news of Amazon’s intentions to head into the pharmaceutical industry broke back in May 2017. At that time the massive online marketplace was recruiting experts in the health insurance industry for the purpose of developing an intenral pharmacy benefits manager for the company’s employees.
“It’s a lot to spend, and it’s not that by doing so CVS will automatically transform its retail footprint,” said Charles Rhyee, Cowen analyst who explained that he had been hearing opinions in both extremes about the decision to buy Aetna. He also pointed out that Cowen has interpreted the intention as a “natural defense” against Amazon’s threat to their space.