Can Walmart Fortify Position Against Amazon With Humana Deal?

Walmart Inc. (NYSE:WMT) has clearly emerged as the biggest contender, when it comes to taking new initiatives to strengthen its foothold against Amazon (NASDAQ:AMZN) . From speedy deliveries to payment systems, from selling grocery to offering meal-kits online, both players have been in a raging competition for quite some time.

Taking it further, Walmart’s plans to extend ties with Humana (NYSE:HUM) to enhance healthcare offerings, seems another bullet shot by the former in its war against the e-commerce king. Sources recently revealed that Walmart is in talks to enhance relation with Humana, which offers health insurance plans and other benefits for Medicare, individual or group insurance.

While both Walmart and Humana have remained silent over the issue, reports suggest that the deal between two giants could also be a merger or acquisition — where Walmart would scoop up the healthcare biggie. If the buyout of Humana (which currently has a market cap of about $37.1 billion) materializes, it will serve as Walmart’s biggest acquisition till date.

Amazon Threat Responsible for This Move?

Well, a move like this had to surface, given Amazon having its eyes on the healthcare space. Incidentally, there has been too much buzz about this e-commerce giant planning to foray the healthcare industry, especially since it announced plans to curtail health expenses and enhance care to U.S. workers, by teaming up with Berkshire Hathaway (NYSE:BRKa) and J.P. Morgan. In another move, Amazon was also looking for ways to enter the pharmacy space, evident from its plans to hire workers to figure out a strategy for the same.

Apart from the supposed Walmart-Humana deal, there have been many other transactions in the healthcare space, largely stemming from fears instilled by Amazon that shook the grocery industry with its major buyout of Whole Foods Market (NASDAQ:WFM) last year. CVS Health’s potential buyout of Aetna (NYSE:AET) , Cigna Corp (NYSE:CI)'s plans to buy Express Scripts and Rite Aid’s (NYSE:RAD) merger with Albertson's are some examples in this regard.

What the Walmart-Humana Deal Could Lead to

Coming back to Walmart, the supermarket giant has been expanding in healthcare for a while now. The company operates pharmacies in most of its stores and Sam Club locations, while it also has in-store clinics in Georgia, South Carolina and Texas – per media sources. Humana, on the other hand also has its own pharmacy benefits division, apart from about 200 standalone clinics for its Medicare members.

While both the companies already share a Medicare drug plan aimed at lowering consumers’ drug costs, an extended alliance or buyout of Humana is likely to help Walmart emerge stronger in the field of providing primary care. Enhanced connections with Humana is likely to help Walmart leverage Humana’s patients and steer them to its stores. Further, combining retail and healthcare arms would help the companies undertake greater wellness endeavors and health plans for customers, like offering incentives for healthy food options.

To this end, Walmart has already been working with Humana’s wellness rewards plan for more than four years now, which offers discounts on healthy food choices to customers who take an online health valuation. Such efforts not only help Walmart increase sale of its products like “Great For You” and “Go360”, but it also helps the retailer promote healthier lifestyle and reduce health care expenses.



That said, we believe that the aforementioned Walmart-Humana merger or buyout (if materialized) is likely to be a win-win for both entities, especially for Walmart by strengthening its customer base and augmenting top line. This, in turn will solidify the big-box retailer’s position in the Amazonian retail world. Notably, Walmart’s continued efforts to battle Amazon’s growing dominance has helped its shares rally 26.8% in a year, surpassing the industry’s rise of 21.2%. We believe that with strength across both stores and e-commerce, the Zacks Rank #3 (Hold) company is likely to witness further growth. You can see the complete list of today’s Zacks #1 Rank stocks (Strong Buy) here.

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