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February 08, 2018 at 01:26 PM
It’s hard to overshadow an industry-defining $67 billion merger of a drug-store mega-chain and large health insurer.
But the CVS Health Inc.-Aetna Inc. tie-up is in the shade after last week’s announcement of a health partnership between Amazon.com Inc., Berkshire Hathaway Inc., and JPMorgan Chase & Co. (“ABC” from now on).
CVS’s already costly deal looks even more expensive after its warning on Thursday of a possible profit decline this year, despite an expected $1.2 billion benefit from tax cuts. CVS shares fell though it reported positive quarterly results.
Still, given ABC and the challenges facing CVS, the Aetna deal may still be money well spent.
Even if ABC manifests in one of its scarier possible guises, CVS/Aetna will be safer than peers that provide only insurance, health care, or pharmacy benefit management. And CVS’s 2018 guidance — announced in January and further detailed Thursday — suggests the deal may have been needed even in the absence of the ABC bogeyman.
(Related: 5 More Aetna-CVS Deal Details, from Aetna’s SEC Filings)
Operating profit — already down 6% in 2017 — is expected to be between -1.5% and 1.5% in 2018, due largely to increased investment. That’s a big reduction from the 1-to-4-percent growth CVS forecast a month ago.
On the key pharmacy services side, the midpoint of CVS’s 2018 revenue growth forecast is 2.5 percent, down from 8.9% in 2017. The company noted on its earnings call that the market for new contracts looks competitive.
