CVS Health Corp (NYSE: CVS) stock is down more than 7 percent since Amazon.com (AMZN) announced a nearly $1 billion buyout of online pharmacy PillPack last week. The good news for CVS investors is that Amazon will likely not have a major impact on CVS’s business for some time, but the bad news is Amazon is already impacting market sentiment in a big way.
Amazon has been testing the waters in the pharmacy business for quite a while, but the PillPack buyout is its most aggressive move yet. PillPack already has pharmacy licenses in each state, potentially clearing a major headache for Amazon as it enters the drug business.
Morningstar analyst Vishnu Lekraj says Amazon may have a strong brand reputation among drug consumers, but the customer in the pharmacy business is actually insurance companies.
“We believe it will still be tough for the firm to create any major disruption within the health care space given the insurance dynamics that drive the market,” Lekraj says.
He says Amazon lacks the expertise and experience in navigating the complicated health care and insurance markets and will likely be subject to a learning curve. In the meantime, he says CVS and other stocks that have sold off on Amazon fears are a buying opportunity.
“We believe the current downward stock price move from fears of new disruptive competition for the drug space creates an opportunity for investors to acquire the solid moaty firms of drug wholesale and [pharmacy benefit manager] industries at discounts,” he says.
Lekraj says CVS overpaid for Aetna (AET), forking up almost twice as much as Aetna was worth as a standalone company. However, he sees opportunity for the combined CVS/Aetna to significantly reduce treatment costs for insurance members with its brand new all-in-one business model and says there is a good chance CVS will eventually out-earn the cost of the capital it took to make the Aetna deal.
Mizuho analyst Ann Hynes says drug stores like CVS may be safe from Amazon for now, but their stocks are at risk.
“We think…
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