Analyst Lays Out Pros, Cons Of The CVS-Aetna Deal

CVS Health Corp CVS and Aetna Inc AET agreed to merge over the weekend, and some of Wall Street's top analysts released their initial take on the deal.

The Analyst

Baird's Eric Coldwell maintains a Neutral rating on CVS' stock with an unchanged $77 price target.

The Thesis

CVS has plenty of challenges it needs to address moving forward, but the merger with Aetna creates some "interesting angles to differentiate and innovate," Coldwell said in a Monday note. But at the same time, the deal brings a lot of uncertainty at a hefty price tag, with minimal accretion until 2020, he said. 

Here are some positives Coldwell identified in the deal:

• CVS' already has a deep relationship with Aetna, which would make a transition smooth.
• Benefits from the combination of medical and pharmacy claims.
• Improvements in big data and analytics.
• A differentiated concept versus the competition.

A strong counter to Amazon.com, Inc. AMZN if it decides to enter the space.

Coldwell said the negatives in a CVS-Aetna merger are:

Regulatory scrutiny.

• A very large investment in MinuteClinic expansion and store design.
• Concerns surrounding consumer choice, cost and ability to steer behavior.
• The possibility the merger is a "desperation move" from CVS.
• The potential for CVS to buying a managed care property near the top.

Price Action

Shares of CVS were trading lower by nearly 3 percent Monday morning, while shares of Aetna were higher by around 2.5 percent.

Related Links:

Analysis: A CVS-Aetna Merger Would Be Revolutionary

What To Make Of The Rumored CVS Bid For Aetna