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Here's Why Evolent Health Is Up 18.8% This Week

By Cory Renauer – Oct 1, 2021 at 8:56AM

Key Points

  • Walgreens Boots Alliance may be considering acquiring Evolent Health, a company that helps healthcare providers manage costs under new accountable care reimbursement programs.
  • Walgreens is flush with cash after selling the Alliance business to AmerisourceBergen earlier this year.
  • Neither company has commented on the buyout rumor.

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There's a rumor going around that Walgreens Boots Alliance wants to acquire the struggling administrative assistant business.

What happened

Shares of Evolent Health (EVH 0.18%) have been surging all week thanks to a circulating buyout rumor. On Wednesday, Bloomberg reported a rumor that Walgreens Boots Alliance (WBA 0.61%) is weighing an acquisition of the struggling healthcare administrator.

Neither company has officially commented but that hasn't stopped the healthcare stock from rising. Shares of Evolent finished Thursday up 18.8% from its closing price last Friday.

A person leans back in a chair with their hands behind their head.

Image source: Getty Images.

So what 

In June, AmerisourceBergen (ABC 0.10%) bought Alliance, a European drug distribution business that Walgreens picked up years ago, along with Boots, a large international chain of retail pharmacies. AmerisourceBergen paid $6.275 billion in cash for Alliance, which leaves Walgreens with plenty of resources to accelerate the pharmacy chain's growth strategy.

Evolent Health helps healthcare providers adapt to accountable care models brought about in the U.S. by the Affordable Care Act. In a nutshell, providers receive fixed sums based on how much it normally costs to treat specific conditions like heart attacks and lung cancer. 

Now what

Under accountable care models, unnecessary tests and procedures rapidly eat into healthcare providers' profit margins. Offering integrated healthcare services at its chain of pharmacies has long been one of Walgreens' U.S. growth initiatives.

Evolent Health has never been able to turn a profit on its own. Folding the operation into its larger business could allow Walgreens to offer a wider array of services without risking heavy losses in the process. With a market cap of around $2.7 billion at recent prices, it's also within Walgreen's means.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Evolent Health Stock Quote
Evolent Health
EVH
$27.19 (0.18%) $0.05
Walgreens Boots Alliance Stock Quote
Walgreens Boots Alliance
WBA
$40.90 (0.61%) $0.25
AmerisourceBergen Stock Quote
AmerisourceBergen
ABC
$170.46 (0.10%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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