Jefferies Thinks Aetna Deal Gets Done, Says Buy Humana
Jefferies analyst David Windley upgraded Humana (HUM) - Get Report to Buy as he continues to believe an acquisition by Aetna (AET) is likely, despite consensus and the market leaning in the opposite direction. Conversely, the analyst expects Cigna's (CI) - Get Report merger with Anthem (ANTM) - Get Report to be blocked by regulators.
AETNA-HUMANA DEAL TO CLOSE: Jefferies' Windley upgraded Humana to Buy from Hold on "attractive" deal-related risk/reward, as he believes the acquisition by Aetna is likely to go through, based on legal expert calls and a divestiture analysis. Department of Justice's concerns will likely lead to higher individual Medicare Advantage divestitures, and perhaps a full Group MA divestiture on the Humana side, the analyst told investors, noting that he thinks both demands are surmountable. If the deal breaks, however, the analyst believes the near-term downside to Humana's shares is 12%, compared to an upside of 41% if the merger is approved. Windley raised his price target on Humana's shares to $210 from $199.
ANTHEM-CIGNA DEAL UNLIKELY: The Aetna-Humana deal is not the only pending merger in the space making headlines. Anthem's proposed acquisition of Cigna has also been clouded by uncertainty and may end up being blocked by regulators. Speculating also on possible outcomes for the deal, Windley said he agrees with the consensus assumption that the merger will not happen, seeing only a 10% probability of an approval by the DoJ. Nonetheless, he noted that Cigna has the "most optionality" to create value and limited immediate downside. Furthermore, if the deal with Anthem is not approved, Cigna will still have a "strong balance" sheet to pursue M&A, with WellCare Health Plans (WCG) - Get Report as a "logical" takeout target, the analyst told investors. Cigna could also contemplate buying Humana, he added. Windley lowered his price target on Anthem's shares to $157 from $171, and also on Cigna's to $160 from $165.
PRICE ACTION: In morning trading, Humana is flat near $159 per share, while Aetna's stock is up fractionally to $118.80 per share.
Reporting by Jessica de Sa-Mota.
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