At the end of October 2017, the US drugstore operator CVS health Corp (Ticker NYSE:CCC) announced its intention to acquire U.S. health insurer Aetna Inc (USA:AET) to $69 billion deal that promised to forever change the health care industry. Aetna shares jumped on the news.
From $160 to$ 180. This movement made sense. As part of the transaction, the shareholders of AET, we had to get $145 per share in cash plus has a 0.8378 shares of CVS for each share of AET that they owned. With shares of CVS are trading around $70, which equates to a total per share purchase price of a little over 200$.
Indeed, the Etna shares drove all the way up to about $200 at the end of January 2018.
But then the broader market turmoil hit. Inflation risks in the market. A trade war is in danger of falling on the market. Regulatory risks in the market. One after another, the risks continued to beat the market, and the market continued to fall.
Same train with the stock. But here at the price of $170 and change, Etna looks beneficial, given that M&a catalyst. If the deal falls through, the risk is greatly mitigated by the already low cost. If the deal goes through, the growth potential is significant.
As such, the shares of AET is attractive here and now.
Here’s a deeper look:
The growth potential is great and probably
In that case, if the transaction takes place, buyers Etna shares here can be rewarded with a 10-15% increase in haste.
CVS stock is currently trading around $67. Thus, the shareholders of AET would have received $145 $ 56 plus about $In the SSS stock for each share of AET. Which is slightly more than $ 200 for each share of AET.
Shares of AET is currently trading at $177, about 13% lower than the current redemption price of $200.
In addition, the deal is probably pretty close considering it was on the table since last October. Thus, the 13% growth potential can be implemented in a hurry.
It is also likely that this transaction will take place. The entire medical industry is consolidation for cost reduction and combating competition advanced technology firms as Amazon.com ink. (NASDAQ:EVENTS OF THE WEEK). This is just one trade of many in the health care industry, the amount of which should reduce health care costs by reducing competition and utilization of synergies.
There doesn’t seem to be anything wrong.
Overall, it is likely that the shares of AET rallies of 10% to 15% from current levels in a hurry.
The Downside Risk Is Limited
Even if the transaction does not take place, Aetna stock will not fall much.
Before the deal was announced, Aetna stock was trading around 160$. Since then, the S&P 500 has risen about 3.4%. Meanwhile, colleagues unitedhealth Group Inc. (US:a) and Anthem Inc (US:industry, Finance and technology) rallied between 10-13%.
Peers SIGNA Corporation (Ticker NYSE:CIG) and Humana Inc (Ticker NYSE:hum) was wildly different moves (cigarette fell 12%, while the drone to 19%), but these wild movements have to do with SIP.
Thus, by and large, the doctor stocks rallied at least 10% SSS-Aetna deal was announced. Applying the same increase of Etna shares assumes the current price of AET in the amount of $176, just a dollar below where shares are traded.
In addition, the numbers in the AET was good (the company beat on top and bottom line expectations in the last quarter), and the estimate of revenues has increased over the past few months. Profit forecasts for this year currently sit at $11 per share. The market-average 16-lead several times in these 11 $earnings implies a present value of $176.
Thus, both the expert performance composition and the basics means that the shares of AET is around 176$, without mergers and acquisitions of the catalyst.
The bottom line the Aetna stock
If the deal goes through, Etna stocks will rise 10-15% over the next few months. If the transaction does not take place, Aetna shares may fall to a few percent, despite the fact that most.
Thus, the risk-reward profile for Etna shares at current levels is shifted in the direction of growth. That makes the shares of AET attractive asset for the next few months.
At the time of this writing, Luke Lango was a long week event.