Health care investors were blindsided on Thursday afternoon when Dow Jones reported that CVS Health Corp CVS 0.6% is exploring a $66 billion bid for Aetna Inc AET 0.89%. As expected, Wall Street analysts have a lot to say about the potential deal.
In a new note on Friday, Citigroup analyst Alvin Concepcion said a marriage between CVS and Aetna makes sense in principle as the health care industry prepares for a major new competitor in Amazon.com, Inc. AMZN 0.65%.
“In sum, we see this potential deal as both evolutionary and revolutionary given the dynamic healthcare environment and push toward consumerism coupled with a challenged retail backdrop and the need to combat a looming AMZN threat,” Concepcion said.
A $66 billion deal would be a tough pill for the $73 billion CVS to swallow.
At roughly $200 per share, Concepcion says the price for the potential deal is reasonable. That price represents 12.4x Aetna’a trailing 12-month EBITDA, which is within the range of the valuations of previous CVS acquisitions Caremark (11.8x) and Omnicare (22.0x).
However, Concepcion said CVS has a lot to gain from the potentially difficult deal. He estimates that the buyout could contribute an additional $0.24 in EPS for CVS within a year of completion. In addition, the two companies could leverage the power of their combined data to gain additional insights about customers.
Customers themselves could also be…
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