Amwell's (NYSE:AMWL) 8% percent decline on Monday appears to be an overreaction to a report that the company was in discussions to purchase Talkspace, according to Wells Fargo. (NASDAQ:TALK). Amwell rose 1.5% in premarket trading on Tuesday.
If a deal for Talkspace is announced, management will need to clarify the strategic rationale for a deal since there doesn't appear to be a "strong strategic fit" for the online therapy company, Wells Fargo analyst Craig Hettenbach wrote in a note on Tuesday.
Hettenbach explained that 43% of Talkspace's (TALK) revenue last quarter was from direct to consumer, and that doesn't align with Amwell's (AMWL) B2B model. Hettenbach has an overweight rating and $7 price target for AMWL.
"Investors have a stronger preference for organic growth and the bar for making acquisitions is quite high given uncertain business conditions more broadly across the digital health space," Hettenbach wrote. "If Amwell were to pursue an acquisition, we think the value proposition would need to be clearly articulated to avoid an adverse reaction."
On Monday, Cowen analyst Charles Rhyee downplayed a possible Talkspace (TALK) purchase, writing that channel checks indicate there is no sales process occurring. He added that he doesn't believe an acquisition fits into Amwell's (AMWL) Converge strategy.
Amwell (AMWL) is said in talks to pay $1.50/share for Talkspace (TALK), according to a Calcalist report over the weekend. A possible deal comes after Seeking Alpha in June reported that Talkspace received but declined a buyout approach from Amwell.