NEW YORK (TheStreet) -- Humana (HUM) shares are up 7.31% to $197.70 in afternoon trading on Thursday as rival health insurer Aetna (AET) closes in on a deal to acquire the company, according to Bloomberg.
The possibility of a health insurance industry consolidation has been weighing on the industry's stocks all week after it was revealed that fellow health insurers Anthem (ANTM) and Cigna (CI) engaged in merger talks over the weekend.
Aetna made an official bid for Humana earlier this week, though terms of the deal were not disclosed, according to Bloomberg sources.
Humana has also received a merger offer from Cigna but its prefers Aetna, sources say.
Analysts have said that the consolidation of the industry is an unintended consequence of the Affordable Care Act, which won an important Supreme Court decision earlier today.
The Court ruled that the federal government can continue issuing subsidies to Americans through the Affordable Care Act, also known as Obamacare.
Insight from TheStreet Research Team
Jim Cramer, portfolio manager of the Action Alerts PLUS charitable trust, recently spoke about the consolidation of the health insurance industry in a Real Money Pro blog post. Here is what Cramer had to say:
I am going to use this respite day to dream dreams of takeovers. Why? Because when I see every single health maintenance company, Cigna, Aetna , UnitedHealth ( UNH), Anthem and Humana in talks with each other, it seems logical to bless pretty much anything happening in the merger arena.
-Jim Cramer, 'Google Should Buy Twitter and 9 Other Dream Mergers', 6/16/2015
TheStreet Ratings team rates HUMANA INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate HUMANA INC (HUM) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, increase in net income and growth in earnings per share. We feel its strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- HUM's revenue growth has slightly outpaced the industry average of 13.0%. Since the same quarter one year prior, revenues rose by 18.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The current debt-to-equity ratio, 0.38, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.22, which illustrates the ability to avoid short-term cash problems.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 59.61% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, HUM should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Health Care Providers & Services industry average. The net income increased by 16.8% when compared to the same quarter one year prior, going from $368.00 million to $430.00 million.
- HUMANA INC has improved earnings per share by 20.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, HUMANA INC reported lower earnings of $7.33 versus $7.70 in the prior year. This year, the market expects an improvement in earnings ($8.66 versus $7.33).
- You can view the full analysis from the report here: HUM Ratings Report