What To Make Of The Rumored CVS Bid For Aetna

The big news on Wall Street Thursday afternoon was the potential $66 billion buyout of Aetna Inc AET by CVS Health Corp CVS. Analysts are looking at the potential deal in terms of how traders should play the two stocks involved.

Aetna stock jumped 11.5 percent following the news of the potential bid, but Cantor Fitzgerald analyst Steven Halper took the opportunity to downgrade Aetna stock from Overweight to Neutral. Halper was previously bullish on Aetna but maintains his price target of $175 for the stock based on its fundamental valuation. Halper said there is enough uncertainty in the potential deal that the $200 rumored takeout price is not worth the risk of buying the stock.

Related Link: Analysis: A CVS-Aetna Merger Would Be Revolutionary

“While we believe that a CVS/AET transaction is not implausible, the risk/reward trade-off given the uncertainty is not attractive,” Halper said.

From the CVS standpoint, Mizuho analyst Ann Hynes said Friday the deal makes a lot of sense. Mizuho had previously discussed the potential advantages of CVS joining forces with a managed care company earlier this year.

According to Hynes, this merger could serve as a template for the future of the pharmacy retail industry.

“Similar to formulary management in pharmacy, this type of partnership between a retail pharmacy and a managed care company could be the next generation of formulary management in healthcare services,” she wrote.

Mizuho sees an opportunity for CVS to expand its number of MinuteClinics or create mini urgent care centers within CVS stores.

Mizuho maintains its Buy rating for CVS and has a $90 price target for the stock.

At time of publication, shares of Aetna were down 3.86 percent at $173.23. CVS shares were down 4.05 percent at $70.34.

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Image Credit: hattiesburgmemory (CVS Pharmacy Uploaded by AlbertHerring) [CC BY 2.0], via Wikimedia Commons