With CVS Merger Looming, Cantor Fitzgerald Shifts To Neutral Stance On Aetna

With a merger of CVS Health Corp. CVS and Aetna Inc. AET pending regulatory approval, Cantor Fitzgerald downgraded the health insurer on valuation.  

The Analyst

Cantor Fitzgerald analyst Steven Halper downgraded Aetna from Overweight to Neutral with a price target of $202.

The Thesis

Aetna shares were trading at a 13-percent discount to their acquisition value in early May, but are now trading at a 4.6-percent discount, Halper said in the downgrade note.

This narrowed spread is likely a result of the increased probability of regulatory approval of the merger, the analyst said. 

“AET-CVS is a vertical merger, which is inherently difficult to challenge, but there remains some potential overlap in the Medicare Part D area. The two companies, in our opinion, should be able to find a remedy to satisfy regulatory concerns." 

The acquisition would allow CVS the ability to continue its transformation to a health services company, as a new pharmacy network and pharmacy benefit manager would further complement AET’s competitive positioning, Halper said.

The analyst said it's possible CVS views AET as a hedge against Amazon.com Inc. AMZN’s entry into the mail order pharmacy landscape.

“Excluding the impact of the CVS merger, we continue to believe that 2018 is shaping up to be a transition year until the company's investments and improved Medicare Star ratings pay off in 2019," Halper said of Aetna. 

“We assume the combined company will pursue a more robust IT strategy, especially in the consumer engagement area. Beyond that, the pending merger with CVS seems logical, especially as other vertical mergers have been announced in the healthcare services industry.”

Price Action

Aetna shares were down 0.40 percent at $196.97 at the time of publication Thursday.

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