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Argus Talks Humana-Aetna Deal Uncertainty, Raises EPS Estimates For Humana

Argus Talks Humana-Aetna Deal Uncertainty, Raises EPS Estimates For Humana - Humana Inc. NYSE:HUM, Aetna Inc. NYSE:AET

The U.S. Department of Justice has brought legal action to block the merger between Humana Inc HUM 1.21% and Aetna Inc AET 0.08% on antitrust grounds.

Argus’ David Toung maintains a Hold rating on Humana.

DoJ Lawsuit

The lawsuit by the Justice Department creates meaningful uncertainty regarding the deal and its timeline for completion.

“At the very least, the merger is unlikely to close by the end of 2016, and will very likely be delayed into 2017,” Toung mentioned, while adding, “Humana’s future appears to be in limbo as Aetna decides whether to fight the DOJ lawsuit or terminate the merger agreement. The first route will certainly lengthen the time needed to complete the deal.”

Related Link: Aetna's Withdrawal From Obamacare Linked To DoJ's Issues With Humana Acquisition

Uncertainties

If the companies agree to terminate the deal, they can continue to pursue their own business strategies. However, for now, the legal uncertainties are likely to impact the ability of both companies to conduct ongoing business.

“In order to address the DOJ’s antitrust concerns, Aetna and Humana agreed to divest certain of their Medicare Advantage assets to Molina Healthcare. The DOJ has not responded to these divestiture plans,” according to the Argus report.

In the meantime, Humana intends to reduce its participation in ACA-compliant healthcare exchange programs due to the higher than expected cost of such plans.

Q2 Results

Humana also reported better-than-anticipated Q2:16 results across most of its major business lines.

Following the Q2 results, the EPS estimates for 2016 and 2017 have been raised.

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DateFirmActionFromTo
Aug 2016Credit SuisseMaintainsNeutral
Aug 2016JefferiesMaintainsBuy
Aug 2016BarclaysMaintainsEqual-weight

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