Stay Long CIGNA (CI), Says Deutsche Bank (AET) (ANTM) (UNH) (HUM)

Deutsche Bank maintained a Buy rating on CIGNA (NYSE: CI) and raised its price target to $180.00 (from $145.00). Aetna (NYSE: AET) and Anthem (NYSE: ANTM) price targets were raised to $135 (from $122) and $180 (from $175), respectively.

Comments follow a rumors from WSJ that said UnitedHealth Group (NYSE: UNH), Humana (NYSE: HUM), and the three companies are in various stages of deal talks.

Analyst Scott Fidel thinks investors should stay long CIGNA.

"While the stock traded up 12% yesterday (vs. the S&P down 0.6%) CI shares trade at over a 25% discount to HUM on our 2016 EPS ests while our updated M&A models suggest an acquisition of CI would likely be more accretive for the Big Three (UNH, ANTM & AET) than a take-out of HUM," said Fidel. "Moreover, we see a lower near-term earnings risk profile associated with an acquisition of Cigna since the company has consistently been beating Street EPS expectations and raising EPS guidance while HUM has missed consensus EPS views in each of the past three quarters."

"We have updated and expanded our published M&A merger models and have included the results in this report. The potential deals that we evaluate in this report include ANTM for CI, UNH for CI, AET for CI, UNH for AET, ANTM for HUM, AET for HUM, and CI for HUM," continued the analyst.

Fidel added, "The deals that we estimate would be most accretive based on 2017E EPS (assuming for modeling purposes only a Jan. 2016 close) are in order: 1) AET for CI (due to assumed higher cost synergies), 2) ANTM for CI; and 3) ANTM for HUM (due to higher assumed PBM synergies). Conversely, the three deals that screen as least accretive, in order, are: 1) AET for HUM; 2) CI for HUM; and 3) UNH for AET. From a regulatory risk perspective, we would also see the highest hurdle to approval for a UNH for AET deal given their enormous combined presence in both the Commercial Risk and Medicare Advantage markets."

For an analyst ratings summary and ratings history on CIGNA click here. For more ratings news on CIGNA click here.

Shares of CIGNA closed at $153.43 yesterday.

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