A big-time merger between two of the Big Five for-profit health insurers may be on the horizon, with Aetna poised to make an offer for either Humana or Cigna, according to Investors.com.
Ana Gupte of Leerink Partners--which hosted an investor meeting Monday at Aetna's headquarters in Hartford, Connecticut--said she wouldn't be surprised if a consolidation were to occur, reported Barron's. Gupte noted the stance of Aetna CEO Mark Bertonlini (pictured right) that "government business is the focus for inorganic growth, while compatible cultures for post-merger synergies were viewed as the driver in all transactions, with cheap debt making either Aetna-Humana and Aetna-Cigna meaningfully accretive possibilities and imminent," according to Barron's.
Gupte mentioned a strong inclination toward Aetna's stock for a number of reasons, as Barron's reported. First, utilization fears in Medicare mentioned in Humana's first quarter earnings report were not as severe as expected. Secondly, public exchanges are well-positioned for a positive margin, while Aetna's team sees even a negative Supreme Court King v. Burwell ruling as a catalyst for a legislative fix for healthcare reform. Lastly, Gupte noted that Aetna's strong accountable care organization strategy appears to be gaining traction with providers, Barron's said.
Aetna's attraction to either Humana or Cigna may stem from a booming Medicare business. Aetna focuses more on employer-sponsored health plans, which have less unit growth potential than Medicare and Medicaid plans.
Humana, on the other hand, is sitting pretty thanks to its Medicare growth. Humana's stock ended Tuesday at close to $172 per share, according to Louisville Business First. Aetna could offer to acquire Humana for as much as $200 per share, Investors.com said.
Following the meeting, Leerink raised its price target for Aetna from $130 to $135, while the insurer reiterated its 2015 operating earnings per share (EPS) of $7.20 to $7.40. Aetna also noted it can achieve at least $10 in operating EPS in 2018; analysts believe this number will come in at $10.12, according to Investors.com.
Other factors suggest merger and acquisitions deals may come sooner than expected. On Tuesday, Humana shares were up 3 percent, while Cigna's rose 2.5 percent and Aetna's rose 0.8 percent. Further, insurer stocks have been hitting all-time highs lately thanks to a significant increase in enrollment.