Walmart’s potential Humana bid ‘could serve as a distraction’ from its core business

A worker prepares the check-out area at a newly built Walmart Super Center prior to its opening in Compton, California.

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A worker prepares the check-out area at a newly built Walmart Super Center prior to its opening in Compton, California.
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Reuters/Mike Blake

Walmart‘s biggest test may not be Amazon, but rather its ability to stay focused.

If a potential bid for health insurer Humana goes through, it could only serve to complicate its business all while the retailer is still figuring out how to unlock its online growth potential amid sagging e-commerce sales growth last quarter, a UBS analyst says.

“It could serve as a distraction from the company’s push to improve its stores and grow its eComm offering,” UBS analyst Michael Lasser wrote in a note to clients. “We believe WMT could be better served by continuing to focus its efforts on improving its core business.”

A tie-up with the $36.75 billion insurer would mean Walmart has to operate several moving parts simultaneously: a health insurance business, a pharmacy benefits manager, clinics, and retail pharmacies, in addition to its already vast retail and grocery stores.

However, Lasser acknowledges there are some benefits to the potential merger. It could help diversify the company’s revenue streams and attract new customers to its healthcare ecosystem. This could possibly drive traffic and lower healthcare costs in turn. A merger could also fend off competition from Amazon, which has already started offering an exclusive line of over-the-counter drugs on its platform.

“Still, it would represent a move away from WMT’s retail roots, & could make an already complex model much more complicated,” Lasser wrote.

Lasser is maintaining his price target of $103 per share and a “Neutral” rating on the company.

Walmart’s stock was trading at $86.69 per share though it was down 11.88% for the year.

Read more about how Walmart could unlock its potential for online sales growth.